The Penny May Be Worthless, but Let's Keep It Anyway

The penny may be worthless, but let’s keep it anyway Bottom Up War on Cash

Governments have long waged a war on cash in an Arizona Rep. Jim Hayes first tried to get rid of the attempt to curb terrorism and tax evasion. Their focus penny in 1989, under the Price Rounding Act, and has typically been on eliminating large denominations, many others have urged its elimination since, leading like Europe’s €500 bill or India’s 1,000 rupee note. the TV series “The West Wing” even to mock the debate in one of its episodes. Two U.S. lawmakers have a much smaller target in mind: the lowly penny, perhaps most commonly found Former President Barack Obama lent his voice to the in jars and underneath couch cushions but rarely used cause in a 2013 interview, in which he called the penny to actually pay for things. a metaphor for the government’s difficulty in getting rid of wasteful services. Their complaint is that the cost to mint billions of these one-cent coins every year is costing taxpayers a small The latest salvo came in March, when Senators John fortune. McCain and Mike Enzi introduced legislation to eliminate the minting of pennies. The bill also proposes So is it time to end the coin’s 230-year run? switching the paper one-dollar bill to a coin and changing the composition of the nickel in order to bring A one-cent history down its cost. They said it would lead to an estimated $16 billion in savings. The penny, the first currency of any type authorized by The penny wouldn’t be the first form of currency the the U.S. government, was initially struck in 1787, U.S. has eliminated. We got rid of the half-cent in though it didn’t become legal tender until 1856. Since 1857. then, more than 300 billion one-cent coins with 11 different designs have been minted.

Abraham Lincoln became the first U.S. president to adorn a coin when he was put on the penny in 1909 on the 100th anniversary of his birth (he wasn’t added to the US$5 until 1914). The Lincoln penny was also the first to include the inscription, “In God We Trust.”

Article written by Jay L. Zagorsky. Copyright © 2017 RSW Publishing. All rights reserved. RSW Publishing has an agreement to republish this author’s content. Distributed by Financial Media Exchange. This article was originally published on The Conversation.

Why eliminate the penny Parts of the U.S. government have already stopped using pennies. The Army and Air Force, for example, have banned pennies since 1980 in all overseas One of the most compelling reasons cited for getting military exchanges, where soldiers and their families rid of the penny is the fact that it’s become unprofitable can shop, because they were too heavy to transport. due to inflation and the rising cost of metals. The U.S. Mint has been losing money on every penny it’s Some countries have already banned one-cent and produced since 2006. other low-value coins entirely. On a fairly recent trip to Canada, I bought a bottle of wine with cash and expected to get a few pennies back in change. Instead, the retailer simply rounded the price of my purchase up to the nearest nickel – pocketing the difference, which became the norm after Canada eliminated its penny in February 2013.

Australia got rid of its penny in 1992 and is expected to axe its nickel soon.

Penny opponents have other reasons besides cost. Some are concerned about the environmental damage caused by mining minerals for coins that are so little used.

Last year, it cost the mint 1.5 cents to produce a penny, creating what in the coin world is known as negative seigniorage. That amounted to a loss of almost $46 million on the production of more than nine billion pennies.

The primary reason is the soaring cost of metals. The price of zinc, which currently composes 97.5 percent of a penny, has tripled over the past 15 years. Copper, which makes up the other 2.5 percent (and once was the sole ingredient), has risen almost fourfold.

The penny isn’t the only coin that’s underwater. The nickel, comprising three-quarters copper and one- Others, like physicist Jeff Gore, head of the advocacy quarter nickel, currently costs 6.3 cents to make – group Citizens to Retire the Penny, are simply which is practically a steal compared with the 11 cents annoyed that we carry around pocketfuls of low-value it cost in 2011. coins, calling it “a big, horrible waste of time.”

Walgreen’s and the National Association of Convenience Stores tried to quantify that lost time in

2006, when it estimated that handling pennies adds 2 to 2.5 seconds to every cash transaction. If every U.S. adult made just one transaction a day, that adds up to more than 60 million in hours spent fiddling with change.

For the love of pennies Others contend that sales tax and other variables lead to an even distribution of final digits that couldn’t be While killing off the penny may seem like a slam-dunk easily manipulated by a retailer. And some businesses, case, the reason we haven’t is pretty straightfoward: such as a drugstore chain in Israel, avoided the People love their Lincolns, as President Obama problem altogether by voluntarily always rounding alluded to in a 2013 interview. down rather than up after the country killed off its

When polled about their feelings in 2014, the majority of U.S. individuals oppose the elimination of either the penny or the nickel. In fact, more than two-thirds said if Bribes work better than bans they saw a penny on the ground, they’d stop to pick it up (which the New Yorker estimated in 2006 would So where does that leave our dear, beloved penny? take 6.15 seconds and pay less than the federal I believe opponents’ primary argument, that we’re minimum wage). losing money on them, is unconvincing since the Beyond sentimentality, however, there are a number of government squanders taxpayer dollars on many of its practical reasons to keep these coins. Retailers in activities, such as the U.S. Post Office (which lost $5.6 countries that have banned the penny, as has Canada, billion in 2016) and countless billion-dollar pork barrel are required to round cash purchases up or down to projects. the nearest five cents. This means if a purchase is In addition, banning pennies is poor public policy $1.01 or $1.02, then the merchant charges you only because so many U.S. individuals adore the coins. $1. If the price is $1.03 or $1.04, then the merchant charges $1.05. Rather than passing an unpopular ban, a smarter way to gradually reduce the use of low-value coins is to This rounding algorithm is perfectly fair if prices are persuade a few major retail chains that do a lot of spread out evenly across the board. However, business in cash to round down purchases to the merchants usually set the price. This means that nearest five cents, like the Israeli drug store did. merchants who strategically set prices could make one or two extra pennies on every cash transaction. Why would they do this? If the above estimate that handling pennies adds several seconds to every Chipotle Mexican Grill tried this rounding method at transaction is correct, then by rounding down, some of its locations in 2012 to speed up lines. It faced companies would increase the number of customers customer backlash at the register when people were each cashier can handle and also make patrons given less change than they expected. happier. The increased productivity might even be Economists call this strategic price-setting a “rounding enough to pay for the lost revenue. tax.” Penn State’s Raymond Lombra estimated that Inducing people to transition away from pennies with eliminating the penny and rounding purchases could small monetary bribes will be a far more successful cost U.S. consumers at least $600 million a year. strategy than forcing people to give up coins they like. Moreover, since the poor and disadvantaged use cash more than the rich, the rounding tax would fall disproportionately on them.