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Many people people think that it is illegal to incorporate coins into jewelry making. This is not true. It is illegal to deface US currency if the intent is continue to use it as legal tender after it has been altered. The purpose of the law is to prevent counterfeiting and fraud and does not apply to objects made out of currency whether for sale or not. If it were illegal to squash pennies, the souvenier machines that you find at various landmarks, museums and amusement parks would be banned.
Specifically, Section 331 of Title 18 of the United States code provides criminal penalties for anyone who “fraudulently alters, defaces, mutilates impairs, diminishes, falsifies, scales, or lightens any of the coins coined at the Mints of the United States.” This statute means that one may be violating the law if the appearance of the coin is changed and represented to be other than the altered coin that it is with the intent of fraud. As a matter of policy, the U.S. Mint does not promote coloring, plating or altering U.S. coinage, however, there are no sanctions against such activity unless the intent is to be fraudulent.
The following is information about the metal content of coins that you might find interesting.
1793-1857: 100% Copper
1858-1864: 88% Copper, 12% Nickel
1864-1982: 95% Copper, 5% Tin & Zinc (Bronze)
1942: Core: Steel; Plating Zinc
1982 –Present: Core: 99.2% Zinc; Plating 100% Copper
1866-1942: 75% Copper, 25% Zinc
1942-1945: 56% Copper, 35% Zinc, 9% Manganese
1945-2005: 75% Copper, 25% Zinc
1892-1964: 90% Fine Silver, 10% Copper
1964-2005: Core: 100% Copper; Plating: 75% Copper, 25% Nickel
1982-1964: 90% Fine Silver, 10% Copper
1965-2008: Core: 100% Copper, Plating: 75% Copper, 25% Nickel
1976: (Silver Bicentennial) 79.1% Fine Silver, 20.9% Copper