Note to Self: Stop Throwing Out Pennies

Whenever I get change for a dollar, I ask the cashier to keep the pennies. They aren’t worth my time, or hers, or yours. Sometimes the cashier refuses for bookkeeping purposes, in which case I politely accept the pennies and then throw them in the nearest trash can. (Is this illegal? Maybe so, but then so is throwing pennies into a wishing well.)

If I were the type of person who regularly a) loaded up my pocket every day with loose change or b) brought all my loose change to a bank or supermarket coin machine, then it might be worthwhile to keep the pennies. But I’m not, and so it’s not. These facts, coupled with the fact of inflation, have led me to wish for years that the penny would be abolished, and probably the nickel too. (When we were kids, playing Monopoly, we never used the $1 or $5 bills; did you?)

But now, at long last, there is a sensible alternative solution to throwing away loose change: “rebasing” the penny to make it worth five cents. The plan comes courtesy of Francois Velde, an economist at the Chicago Fed. Austan Goolsbee has a nice writeup on the subject today, including the necessary history and objections.


katre

I love this plan. Just give me a month's notice so I can go convert my life savings to pennies, hang on to them, and suddenly be worth five times as much.

Krishna Kumar

Oh, yes, we did use the $1 bills while playing Monopoly. Otherwise, how do you pay the rent on the various properties? Did you just round them up to the nearest $10?

bertrecords

The yen and the penny are approximately equal in value. Yet, you will not see a one yen coin in Tokyo. You might get one in a less populated area. There is a .01 Euro coin that I attempted to use in Paris, but instead, the cashier stared at me and demanded real money. I attribute the continued use of pennies in our country to our stupidity. We seemingly can't round 99 cents to the nearest dollar, so I doubt our society is smart enough to adopt the Francois Veide solution.

Martica

Mr. Goolsbee needs to check his facts a touch. The Europeans may have dumped their smallest demonination coins, but we're still stuck with the penny here in Canada. We'd be quite happy to see them go as well.

epiphanic

I see this as a short-term solution to a long-term problem. Eliminating the penny will increase demand for the nickel (which is one goal), thus increasing the demand for what it's made of. Eventually through demand increases and inflationary effects the nickel (or whatever the 5 cent piece is) will be worth less than what it costs to mint it. It's essentially a slippery slope.

p.s. If people think that their pennies are worthless, I'll gladly take them. :)

ajakx

katre is right. The incentives to have a bank run on pennies would be huge.
My macro studies are a few years behind me, but wouldn't an increase in the money supply, to the tune of 0.4% (using Goolsbee's numbers), create some inflationary pressures? ...which as we know from reading MSM inflation disproportionatly hurts the poor, negating the purpose of simply doing away with the penny in the fist place, rather than bumping up the value by 4 cents.

WillClark

Getting rid of the penny wouldn't be the first time that coins have fallen out of circulation. Ever heard of a half-pence?

Personally, I think this is a tremendous idea, but one that would require some pretty significant regulation in the beginning. Rules could be made limiting the amount of pennies that individuals could request from the bank, cash transactions would be rounded to the nearest $.05 prior to the conversion date, etc. This system wouldn't change how interest works or anything; electronic payments would still use cents as a denomination. This is a good "outside the box" solution to the problem of pennies actually costing money to produce.

FrankTheTank

The real effect here could be political. This would effectively serve as a one time, ultra-progressive tax break (one that most of those in the upper tax brackets would hardly care about)

For those to who "count every penny", it would mean an substantial increase in value to whatever change they have lying around (or at least a portion of it). On the otherhand, those like Mr. Dubner who have the solid financial standing to casually throw pennies away would see no benefit.

In order words, those who would benefit would be very happy while those who might lose out (or I suppose "benefit less") would not care. A net positive situation.

I have to believe that any party that made this a main platform plank in the next election would swing a VERY large portion of middle america.

FrankTheTank

Also, awesome for this guy...

http://www.signonsandiego.com/uniontrib/20040701/news_1m1pennies.html

poiter_in_nyc

Australia removed the penny probably around 10-15yrs ago. All cash transactions are rounded to the nearest 5 cents, where 6&7 round down to 5, 8&9 round up to 10.

tmitsss

Lincoln's 200th Birthday could serve as the excuse to do this.

YodaYid

Why not give them to charity? Collection boxes don't judge...

EarlWer

I put all change that could not be used in parking meters into a large glass jar. When my oldest son was learning about numbers, we dumped the contents on his bed and started counting and making rolls. He put them into his bank account. Many years later, (he is now 10) we split the contents with his younger brother.

tokyov

Not sure where bertrecords shops in Tokyo -- maybe in 100 Yen shops with 5% tax change works out nicely, but the 1 yen coin is alive and well here.

There's one cultural difference that helps a great deal with what I call "change management". The cashiers in Japan will actually *let* you use your coins. If the bill is, say, 908 Yen and you hand over a 1000 Yen note, the cashier will ask you, "out of 1000 is okay?" expecting that you will contribute a few coins to minimize your change and giving you the opportunity to unload.

Not so, on a recent visit back to the States. Cashiers took my 20's and handed back the change before I could dig into my pockets. The trick is to hand over the coins first.

Alon

i remember a few years back reading an article that said under some circumstances, a NYC street bum shouldn't pick up a penny from the street. this is because it would cost him more than a penny to buy food that will compensate for the energy he lost by picking it up.

anybody else remembers such a thing?

HF

Finding these replies and the initial entry somewhat superficial and, well, a very privileged "problem". Guess it wouldn't be blogged and commented if it wasn't seeing as the tech and ware to do it costs.

One can assume, applying a bit of empathy, that instead of throwing change in the trash, it can be used to better things. To people.

Every thing adds. Especially for the less fortunate. Why not carry this penny, or in its assimilated plural forms, its dead weight all the way to a charity collection box somewhere?

Or even do all the work to save 5 nickels, change them to a quarter, and give it to someone who has no choice but to ask.

After all there are more dimensions, perspectives, and alternatives to perceiving of economics, money and so forth than those that are the socially constructed and dominant ones apparent in e.g. the everyday news discourse.

onlycrook

Last summer I supported 4 people on $850.00 one month. I'm amazed that there are people who actually throw away pennies. It's depressing.

zoemccabe

It's crazy to throw out money. Just a few pennies is annual interest on a dollar. If you think of it like that, you wouldn't throw them away.

Charles Miller

A run on pennies is unlikely to be a major problem. If everyone knows that something is going to become five times more valuable next week, you're unlikely to find anyone willing to sell it to you today.

At the first whiff of this (particularly unlikely) rebasing being implemented, everyone with a decent supply of pennies would institute "necessary change only" policies. Shops would instruct cashiers to refuse requests for change to be given pennies, and banks would only provide rolls of pennies as reasonable proportions of larger change orders.

There would be some rorting of the system, probably mostly from cashiers, who would have the best combination of access to significant numbers of pennies, and the low-income incentive to take moderate risks for a small reward.

When one- and two cent coins were phased out in Australia, a couple of smart-arses decided to try demanding their groceries be rung up and charged separately, as rounding the cost of each item separately saved them more than rounding the entire bill at the end. They soon found that supermarkets were not obliged to offer them service.

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BelfastBrendy

I don't know where the author of the NY Times article did his research, but the pennies are still alive and well in the UK. Furthermore, the only countries in the EU that have stopped making the one cent coins are Finland and the Netherlands. But, as they are members of a common currency, one cent coins from other member states remain legal tender there.