And While You’re at It, Toss the Nickel

Producing a penny costs about 1.7 cents, and the Treasury’s annual penny deficit is about $50 million, according to a New Yorker article by David Owen.

Yet folks — and some companies — still want the penny around, in part because they fear merchants rounding up prices and increased reliance on the even more expensive nickel (which costs almost ten cents to manufacture).

But rounded prices would be virtually imperceptible to today’s customer, Owen argues — especially with a growing number of transactions being handled by non-cash media like PayPal or credit cards, which aren’t subject to rounding.

Owen makes a bold suggestion:

Get rid of nickels as well. (And don’t bother re-basing the penny.)

New Zealand successfully and peacefully axed its five-, one-, and two-cent coins. Canada stopped printing its one- and two-dollar notes (sans mass-protest) and — pointing to New Zealand’s success and minimal inflationary effect — is considering eliminating its one-cent coin.

If not success stories, and 60 Minutes segments, what will persuade Americans to drop the penny?


AlexW

Let's just drop the hundredths position of prices entirely! No one minds rounding up from the thousandth because they never see them. If we got rid of that pesky hundredths spot where the pennies and nickels reside, then no one would really miss them or notice that the prices are being rounded, which they currently are anyway. 6% tax on something 19.99 is 1.1994 dollars but no one minds paying those extra 6 tenthousandths of a dollar. It'll catch on...like the Lemon Law, I'm gonna make it a thing.

Billy

Let's not only get rid of the penny and the nickel, but let's also fix the problem that none of our denominations have the buying power that was intended when they were originally created.

That will take two steps. First, eliminate the penny and nickel and replace the quarter with a twenty cent piece. We'll have:

$10.00
$5.00
$1.00
$0.50
$0.20
$0.10

Next, revalue all the currency to divide the denominations by 10 (aka multiply the value by 10). So, what currently costs $10 will only cost $1 new dollar. Then, we'll be back to:

$1.00
$0.50
$0.10
$0.05
$0.02
$0.01

Each coin will be 10x more cost efficient to make than today, the dollar will go a lot further and being a millionaire will mean you're rich again.

Jim

Am I the only one who takes solace in the fact that coined money actually has a real value? Give me all your pennies. Then at least I'll have something to sell to china when all your paper and electronic money is worthless.

I hope everyone has brushed up on their bankers rounding.

http://en.wikipedia.org/wiki/Rounding#Round-to-even_method

Geoff

@tri (#31): The design changes to the US currency are principally cosmetic, and the impact is probably limited to a few interests such as banks and vending machine manufacturers (and counterfeiters!). Admittedly, the change in size to the UK 50p coin is also cosmetic. I think a strong case can still be made that the US is unusually resistant to significant change to "infrastructural" system.

Caleb Powers

This isn't an economic question, it's an emotional one. The penny is the comfort food of coins. It's ingrained into our culture and our dialect. The obvious economic decision is to stop making them, but I don't see the idea getting much traction. The penny, after all, doesn't hurt anyone. And there's something satisfying about being able to make correct change. No one thinks the savings will reduce his own tax bill, so people don't see much value in it.

Pennyhating Cliometrician

All these arguments against dropping the penny are a rationalization. We're coming up with excuses to keep the penny, even though the equivalent has happened many times throughout history without incident.

Back in the nineteenth century, we had such a thing as a half penny. Nobody worried much when the half penny was ditched.

In pre-decimal days, the British had the farthing (1/4 of a penny). It gets even better -- the pre-decimal penny was 240 pennies to the pound (hey, they invented inches and feet). They ditched the farthing in 1960 and decimalized in 1971. So within a space of eleven years, their smallest coin went from 1/960 of a pound to 1/100 of a pound, a factor of almost 10.

You may think: It's one thing to go ten-fold from 1/960 to 1/100, but another thing to go from 1/100 to 1/10. Not quite -- the UK GDP deflator for 1960 vis-a-vis 2008 is around 16. So, the jump was just as big for the British back then as it is for us today. And yes, they had sales taxes in the UK back then.

I say not only ditch the penny and nickel, but also go to polymer banknotes. I'm tired of us always being the last civilized country to adopt an innovation (the flip side of it, I suppose, is that sometimes we're the first uncivilized country to do something ...).

Read more...

neil wilson

We got rid of the half cent before the Civil War. Why can't we get rid of the penny? Change the nickel and the half dollar and get rid of the $1 and $2 bills.

Japan has a coin worth $5 and the smallest bill is worth $10. However, they still have a one yen coin worth about a penny. They still use it a lot and I have never seen a place to take a yen or leave a yen. I wonder why Japan uses the one yen piece so much more than we use the penny.

Chris

Also, great job posting links to really bad sources. You link to prove the minimal inflationary pressure has *no* sources or references. Its like trying to use a wikipedia entry to prove your point - after you edited it to prove your point.

Unless you are trying to demonstrate that the internet is like statistics (you can use it to prove anything) you should spend more time actually crafting an argument.

Chris

Okay, lets get rid of the penny...

Now, what are you going to do about all those taxed transactions. If I buy something for a dollar and the sales tax is 6% should the business get an extra 4 cents or take a 1 cent loss? Look at this this way, every penny that is 'rounded' ends up being a 1% tax on someone.

Maybe I should make sure everything I buy is in multiples of $5. Maybe I should just use a credit card for every transaction - we'll just ignore the added fees and costs that imposes on business and individuals. Maybe we should just ban cash - I mean hey, if you aren't doing anything wrong then why should you have a problem leaving a digital record of every aspect of your life? I for one fully trust my government and major corporations not to abuse, lose, and misconstrue the daily data of my life.

VS

When I moved from Finland to the US four years ago, there were three things that really annoyed: the penny coin, the dollar bill, and the overall need to carry cash vs. all electronic transactions.

In Finland they cut the smallest coins years before euro, and does not use the smallest 1 and 2 euro cent coins now. The system works perfectly, rounding cash transactions to closest 5 cents, and my pants are not dragged down by the weight of coins.

Scott

You could just revalue the penny to be worth 5 cents, thereby creating acceptance, value and chaos at the same time.

JD

In 1900 before the Federal Reserve created all this inflation a penny is worth about what a quarter is today. Might as well face reality and get ride of dimes as well. Most people don't care is something cost 5.40 or 5.50.

A.W.

I don't think the rounding up concern is warranted. Most merchants have prices like $1.98 because they want the good to APPEAR cheaper than it is (consumers think - "oh its only $1 and change"...) If they round up to $2.00, it will lose that psychological "bargain". It's more likely that they'll round down to $1.95

ArtC

I've lived in three countries and visited many others where the lowest unit of currency wasn't represented by a coin. Electronic transactions (including credit cards) use the equivalent of pennies; cash transactions don't. It works just fine. Surveys may say Americans like the penny and the dollar bill, but sometimes gutsy public officials are needed to overrule the stubborn masses. Do away with the penny and the nickel, and maybe the dime, too. Abolish the dollar note. And while we're at it, put numerals on the coins instead of words like "quarter-dollar" that stump international visitors.

in fits of print

It's true that not having a nickel would make the quarter awkward, unless you got rid of the dime, too (which would be fine by me--worth the extra $20 I get once a year from cashing out my change tin).

I know they make more sense from an economic standpoint, but I'm always annoyed when I get $1 coins--I almost never spend change, and it's easier to just have all my cash in one place--my wallet. BUT the absence of tiny denominations to fish through might soften that position somewhat.

student of exurgy

AlexW asked "How many things are actually worth less when refined?"

Anything, if you (accurately) account for all the energy expended to refine it ...

Welcome to the thermodynamic universe, where it's not just a zero sum game - instead, you keep losing free energy bit by bit.

K. L.

Why not do what they do in Italy - give one cent stamps as change instead of penny coins. The way postage rates regularly rise, having penny stamps would be helpful.

While we're at it, why can't postage be made in denominations like currency? Forget the "first class stamp," just have stamps in 1 cent, 5 cents, 25 cents, etc.

Dan

"Increased reliance on the nickel"? Nonsense. Nobody ever uses pennies when we could use nickels instead. Reliance on the nickel is as high as it can mathematically get.

Don

Drop the penny. Drop the nickel. Drop the $1 bill. Add a $2 coin to the $1 in production - since we've dropped the penny and nickel, the old problem of the number of slots in a cash register drawer is gone, so they'll have some chance of staying in circulation. Who cares if it's small potatoes compared to other ways our government spends money - it's still $Millions and an obvious fix. Fix it!

Nathan

I think the issue to consider here is not only the production price of these coins. These are expensive now due to the high price of metals which go up and down over time.

I'm for getting rid of the penny (and possibly nickel) but my greatest concerns are:
How much money will this take out of the marketplace?
Where will this lost value be compensated?
Can we successfully incorporate a system for using the 0.01 in theory but not real life? If not, will this not increase all production costs, price adjustments and therefore money out of people's hands?