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.


Andrew Laurence

As someone who collects euro coins, I can assure you that all member states manufacture all denominations, though some only make the smaller denominations as part of collectors' sets and not in circulation quantities.

alex

I would only support elimination of the penny if it was in conjunction with a law eliminating goods priced in increments of less than 5 cents. I don't see why I should have to pay $1 for something worth only $.96!

I'd really love to see that at gas stations as well.

Throwing away money that it costs you nothing to keep is far more irrational than voting in spite of a lack of direct repayment. Is it really less work to find a trash can than to place your pennies in those ubiquitous dishes of change at the checkout line? Yours is an act of defiance akin to the feeling of social benefit [from voting] you previously blogged about, only one which costs you directly and indirectly.

Matthew

I got stuck with plenty of ichi en coins in Tokyo. I don't know what #3 is talking about. They piled up, just like pennies, because it was hard to find a use for them.

Fazu

The re-basing of the pennies (e.g. to the value of 5 cents as mentioned above) should be announced in a "surprise" move. For instance, the government can make a nationally broadcast announcement at 11.45 pm that the pennies are effectively rebased at midnight of the same day. By minimising the transition period, there is less potential for "chaos" in the form of pennies-holders refusing change or having to institute a "necessary change only" policy. Thus the beneficiaries of the new policy should be left to chance i.e. those who happen to be owning a lot of pennies at the time of the announcement. This will also prevent profiteering by speculators and can enable a smooth transition.

Seth Amicone

Pennies should go to third world development, not in the trash.

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?