Is America ready for a brown nickel?

January 15, 2014: 11:14 AM ET

Fortune visits the U.S. Mint's R&D lab in Philadelphia to learn more about what's in store for future coinage.

Experimental coin blanks in use at the U.S. Mint in Philadelphia.

Experimental coin blanks in use at the U.S. Mint in Philadelphia.

FORTUNE -- The Deputy Director of the U.S. Mint is telling me that I am holding in my hand what could be a future nickel. I don't believe him.

Standing in the Mint's research and development lab in central Philadelphia, I look down at a brown piece of metal that is the size of a nickel, but about the color and weight of a penny. I am immediately thrown off by both its light feel and dark hue. There is no way anyone would ever think this is real, I keep thinking.

Since 2011, Mint officials in this lab have been looking into alternative metals for coins that could bring down the agency's growing production costs. After spending $8.1 million on research, scientists discovered six potential metal alloys for pennies, nickels, dimes, and quarters that could save the government between $30 and $40 million a year. The copper-plated zinc option for nickels that I have in my hand is just one of them. (Researchers here refer to it as the "nonsense nickel.")

More: Preview: Inside the U.S. Mint's R&D lab

But before any cost-saving alternatives are pursued, the Mint must figure out if Americans will reject a brown nickel -- or other cost-saving changes to U.S. coins -- just like I did. The government arm is embarking on an extensive coin usage study this year to find out how, when, and why in a digital age we still pay for things with coins, and if the size, color, and feel of them really matter.

"There could be a new metal that could work that would have transition costs, but it is really all about how people use their coins," Deputy Director Richard Peterson told me when we sat down for an interview. "What will people say when you feel what you felt [in that lab]? That's what we need to go and figure out."

The broad mission of the Mint is to facilitate commerce with trusted American coins. Changing the weight, color, or thickness of the coins we touch everyday could jeopardize the American people's confidence in coinage. That's partly why the Mint hasn't altered its currency significantly for nearly 50 years.

In 1965, rising silver prices forced the Mint to switch the nickel, dime, and quarter to a mostly copper composition. Today, the Mint is facing a similar dilemma with copper. The penny and the nickel have cost more to produce than their face value for eight years. In 2013, the Mint lost $105 million just producing those two coins.

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The absurd cost of production has led some to conclude that the Mint should just stop producing these small forms of currency altogether. After all, the Royal Canadian Mint announced in 2012 that it would phase out its penny, saving taxpayers $11 million a year. But even in an age when more and more people pay for goods with plastic cards and smartphones, the demand for pennies and nickels is still growing. Last year, circulating coin production increased nearly 18%. About 62% of that production came from 6.6 billion pennies.

As the economy expands, there are more transactions. More transactions always mean more small change, Peterson explained. Even in 2013, cash still accounts for at least 45% of all exchanges under $25. Although Peterson acknowledges that technologies like mobile wallets and Square are shaping the future of payment, he said he has to plan as if coins -- even pennies -- are going to be here for a long time.

"How we can [make coins] most cost effectively has become the real issue," he added.

The American public is not the only stakeholder wary of altering or eliminating U.S. coins. The $40-billion-a-year vending industry, which relies on coins as its principal form of payment, would also be heavily impacted by any changes at the Mint. By taking away the copper base of some coins, all coin accepting machines would have to be recalibrated to accept currency with a new metal signature.

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The National Automatic Merchandising Association estimates it could cost as much as $3.5 billion to upgrade every piece of equipment. Even as payment technology advances, only about 7% of machines were equipped with cashless readers in 2012, said Eric Dell, NAMA senior vice president of government affairs.

"The majority of our members in the industry are small businesses," said Dell. "Whatever the financial impact is, it would be on small business, which are creating many of the jobs in the country."

This December, the Mint must outline in a report to Congress the progress of its research into alternative medals and perhaps make a recommendation about what should be done. The organization plans to work closely in 2014 with all coin-accepting industries as well as survey the American people. Ultimately, the Mint's recommendation will be dictated not necessarily by what plan will save the government the most money, but by what the American people and vending machine industry will most readily accept.

"I give the American public a lot of credit," Peterson said. "If we gave them a proper public relations campaign about what we are going to do and why we are going to do it, people will get on board and support the program."

Despite Peterson's optimism, I can't help but think about the bizarre brown nickel I held in my hand last week. Change is hard -- figuratively and literally. After 50 years of little modifications made to coinage, is America really ready to see a brown nickel? What about a smaller one -- or none at all? Based on my jarred reaction last week in the Mint's lab, Peterson and his colleagues have their work cut out for them.

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