Many people think that it is illegal to incorporate coins into jewelry making. This is NOT TRUE. It is only illegal to deface US currency if the intent is to continue to use it as legal tender after it has been altered. The purpose of this law is to prevent counterfeiting and fraud. It does not apply to objects made out of currency whether for sale or not. The best example of this is the machines that squash pennies to make souvenirs that you find at various landmarks, museums and amusement parks. They would all also be illegal and would have been banned years ago, but even today you can still go to DisneyLand and get a penny with an imprint of Mickey Mouse on it!
More 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 another coin other than that of the original altered coin. Put more simply the U.S. Mint does not promote the act of altering U.S. coins, but there are no specific laws against such activity unless the intent is to be fraudulent.