He says: “The arguments in favor of retaining the penny are weak, arising from the same wellspring of nostalgia and we’ve-always-done-it-this-way inertia that’s hindered conversion to the metric system. The real question is not whether the government makes money on pennies but whether the coin serves any commercial purpose.”
One argument for keeping the penny, which isn’t mentioned in his article seems to be that of inflation. Here I’m not talking about how everybody is going to suddenly have to pay $1 instead of 99 cents. There is a whole load of money that is out of the system if as Cecil says “Half of these pennies [13 billion] disappear from circulation within a year, having been squirreled away in penny jars and who knows where else”, then there will be a problem when everyone tries to cash in their penny jars. If there is $65 million a year going into penny jars and suddenly the Fed says you’ve got to trade them in imagine how much extra money will suddenly show up in the system.
Because I guess if it is decided to scrap the penny everyone will get a chance to trade them in. There’s also a definite possibility that while people are being reminded to trade in their pennies they might also remember to trade in other coins too.
Why is potentially billions of extra dollars turning up in the system a bad thing? Well, it just is okay.
Why would the government demand everyone turn in their pennies all at once? Why not remove them by attrition? Any pennies out are still in circulation, but can be turned in by merchants or citizens to financial institutions. These collect the pennies and remove them from circulation, either direct exchange for cash or taking them as deposits to accounts.
This is exactly how the bills are being exchanged. No one is required to turn in their old fives, tens, and twenties to the new updated designs, but as they cycle through banks they are removed as they wear out.
Under the system you suggest what incentive would there be to stop vendors from selling things at $4.99? Or would it just be that the vendors wouldn’t be able to get any pennies from the bank?
At what point after the government stopped producing the pennies would they stop accepting them back? Or is the answer never?
I wonder what the scope for penny fraud is? If the banks hardly ever saw them, and they could be really old I wonder how easy it would be to fake a batch?
Let’s put it this way - a counterfeit quarter is worth twenty-five times as much as a counterfeit penny, and is probably easier to pass. (Who the heck could tell a counterfeit North Dakota Quarter from a real one? What does a real North Dakota quarter even look like?). There doesn’t seem to be a lot of current concern by anyone about counterfeit quarters.
I’m trying to picture a counterfeiter trying to make a significant purchase with a wheelbarrow full of counterfeit pennys, and somehow I just don’t see him getting away with it. “No, officer, I don’t remember what he looked like. It was just another transaction during a busy day…”
Seriously, there is no way this would work. Think about how ridiculous it would be to try to get rid of that many faux pennies. Then multiply it by five, because it costs the Mint 0.81¢ just to make a penny, and I doubt you could do it for cheaper.
In New Zealand, we scraped the one and two cent coins (literally, they were converted to scrap metal) in 1989 and finally demonetised from public circulation in 1990. Huge public campaigns helped alot too. Mind you, since NZ is a pitifully small country compared to the US the shear logistics would be mind-boggling.
Apparently the national Reserve Bank will still exchange and demonetised coins and notes though.
I imagine for a while vendors could get pennies for a while. I don’t know if it would make more sense to stop minting them but keep dispensing the ones already made or stop dispensing from banks immediately. That would be a decision for the Treasury Department. Depends on the cost invested in pennies versus expected life, etc, as well as logistics of dealing with them. Maybe it would make sense to stop dispensing from banks.
At some point, they would be unable to get them. I don’t expect the government to ever stop accepting or redeeming them. Any U.S. coin ever minted is still technically worth it’s face value. The old ones have more value as collector’s items because there are so few of them, which keeps them in collector’s hands. This is a natural process on money no longer minted, as they disappear by attrition.
At some point as the coins would be removed from circulation enough that vendors would have to round prices. You could still use five pennies at at time, but the vendors would then turn them in to the bank.
Of course with the upbiquity of credit and debit cards, prices could go to mils if we want.
If a quarter is on the ground, more that likely I would stop to pick it up and put it in my pocket. If a penny were there, and nothing else, I would not take the time to pick it up.
Pennies do add up. I give mine to my youngest daughter, she collects them.
A long time ago, young folks (school children) in the state of Kentucky were asked to bring in their pennies to help restore, “My Old Kentucky Home”. The children’s pennies made the restoration possible. I wish I could remember the exact amount, but at a guess, I’m thinking that it was around $25,000.
If they discontinued the penny, I don’t think that everyone would gather up their, “few dollars” worth and run to bank to cash them in. In another view, I would collect, “my” pennies for a worthy cause such as education, cancer research, etc. and turn them in.
The problem with removing pennies from circulation is that it simply turns the nickel into our new penny. The penny is simply a penny because it’s the smallest division we make to a dollar. If we remove the penny, then the smallest division we make is a nickel – and who’s to say that’s any better or worse? We’ve still got fractional dollars to deal with. By removing pennies, you get a system where you say “That’s three dollars and six nickels” instead of “That’s three dollars and thirty cents” (though you’d probably still use “thirty cents” in speech since it’s more comfortable).
Besides, it’s absurd to have a notion of “cents” but not be able to have “one cent.”
I’m not sure I follow you. There’s a big difference, because the penny is worth so much less than the nickel.
I disagree. I haven’t travelled much, but I was in Italy in 2001, when they were using lire. The smallest coin I saw in the month I was there was 50 lire. Do you know how much 1 lira was worth? About 1/20 of a US cent. It would have been economically insane to have 1 lira coins in circulation. What you define as 1 unit of currency really shouldn’t matter.
The penny is rapidly becoming an anachronism in this country. As Unca Cece notes in his 1998 article, the fact that many vendors keep little collection areas near their cash registers to collect the unwanted pennies, which are then used by later customers to make “even” change shows that we don’t really value the possession of an added .01 to .04.
One of the more annoying things about modern media-driven government is that it rarely seems to take a bull by the horns and do what is necessary but unpopular. The paper dollar and the continued minting of the penny are both examples of this. Neither is in our best interest as a country, but government refuses to take unpopular steps to remove either from circulation.
As for the absurdity of the notion of not having “one cent” available, why should we have ANY division lower than a Whole Dollar? Why divide them up into ANY smaller amount, let alone “one-hundredth” (which is all “one cent” means)?
Up here in Lotus Land (British Columbia - any Canuck will know what I mean) our Provincial taxes is 7.5%. Combine that with 7% Federal tax, and you get some weird numbers at the till. I imagine it’s much the same in many of the States. Point is - until a cashless society comes about - and I’m not holding my breath for it - pennies are going to be needed for any cash transaction.
Likewise, if you cash your paycheque, and your bank simply decided to “round off” the amount to the nearest dollar, in whose favour do you think they would do so?
It doesn’t matter what the tax rate is; you’ll always have to do some rounding. Where I live it’s 5%. So if the subtotal is $12.27, is the total after tax $12.8835? Of course not; it’s $12.88. I don’t know how merchants and banks where you’re from work, but in my experience, here, they always round to the nearest cent, only in their favor half the time.
Any concern for the idea that if they stopped minting them, nimrods would begin hoarding them because they think the pennies will be valuable some day, without bothering to find out first what kind of condition coins need to be in to be valuable (i.e., minty fresh and spotless)?
Someone has already mentioned the example of Italy, and here’s another one: in Switzerland, where many people pay in cash, every price is rounded to the nearest multiple of 5 pfennig (5 centimes). I see that the 1 centime piece is still being minted (see here) but seeing one in circulation would be much rarer than finding a $2.00 bill in the USA. There used to be a 2 centime piece but that one seems to have gone away.
As a sort of parallel, there’s the phasing out of the British decimal half penny in 1984. This ran utterly smoothly. The main simplifications compared to eliminating the US cent would have been that you never got items priced at £0.99 1/2p and that it’d only been around for about a decade in the first place.
Then again, the fact that within living memory the UK has seen the entire overhaul of its money that decimalisation entailed, the replacement of the English £1 note with a coin, the elimination of the ha’penny, numerous redesigns of the banknotes and an ongoing debate over joining the Euro, all without any great economic upsets as a direct result, does suggest that US inertia in these matters may be more psychological or cultural than practical.
