A debate exists within the United States government, and American society at large, over whether the one-cent coin, commonly called the penny, should be eliminated as a unit of currency in the United States. Two bills introduced in the US Congress would have ceased production of pennies, but neither bill was approved. Such a bill would leave the nickel, at five cents, as the lowest-value coin. On February 15, 2013, President Barack Obama stated his willingness to eliminate the penny. Although a 2015 memo revealed that Secretary of the Treasury Jack Lew had considered eliminating the penny, there are currently no plans to abolish the penny.
In 1990, United States RepresentativeJim Kolbe (R-AZ) introduced the Price Rounding Act of 1989, HR 3761 to eliminate the penny in cash transactions, rounding to the nearest nickel. In 2001, Kolbe introduced the Legal Tender Modernization Act of 2001, HR 5818, and in 2006, he introduced the Currency Overhaul for an Industrious Nation (COIN) Act, HR 5818. While the bills received much popular support from the public, and therefore from their representatives, the bills were not made to law when Congress adjourned. There are public pressures on many Representatives to reintroduce these bills to the legislature. One such example is the constituency of the 2nd District of Colorado, represented by Jared Polis.
Arguments for elimination
- Production at a loss – As of 2016[update], it costs 1.5 cents to mint a penny. In 2007, the price of the raw materials from which it was made exceeded the face value, so there was a risk that coins were illegally melted down for raw materials.
- Lost productivity and opportunity cost of use – With the median wage in the US being about $17 per hour in 2011, it takes about two seconds to earn one cent. Thus, it is not worthwhile for most people to deal with a penny. If it takes only two seconds extra for each transaction that uses a penny, the cost of time wasted in the US is about $3.65 per person annually, about $1 billion for all of the US. Using a different calculation, economist Robert Whaples estimates a $900 million annual loss. Additionally, Whaples argues that eliminating the penny would coax people into using $1-coins. The Federal Reserve says that replacing $1 bills with $1 coins would save an additional $500 million a year.
- Limited utility – Pennies are not accepted by all vending machines or many toll booths, and pennies are generally not accepted in bulk. Pennies often end up sitting in jars or are thrown away and are not in circulation. Economist Greg Mankiw says that "The purpose of the monetary system is to facilitate exchange, but... the penny no longer serves that purpose." Pennies are often discarded by consumers and the Mint must produce more of them than all other coins combined.
- Prices would not be higher – Research by Robert Whaples, an economics professor at Wake Forest University, using data on nearly 200,000 transactions from a multi-state convenience store chain shows that rounding would have virtually no effect. Consumers would gain a tiny amount – about 1⁄40¢ or $0.00025 per transaction.
- Elimination would not hurt the poor – Given that rounding is neutral at the transaction level, and that cash transactions are faster without having to deal with extremely low-value coins, people who disproportionately deal in cash transactions might be helped more by elimination of the penny.
- Historical precedents – There has never been a coin in circulation in the US worth as little as the penny is worth today, although currently other countries have coins with less purchasing power in circulation. Due to monetary inflation, a nickel (5-cent piece) in 2007, was worth approximately what a penny was worth in 1972. When the United States discontinued the half-cent coin in 1857, it had a 2010-equivalent buying power of 11 cents. After 1857, the new smallest coin was the cent, which had a 2010-equivalent buying power of 23 cents. The nickel fell below that value in 1974; the dime (at 10 cents) fell below that value in 1982; the quarter (at 25 cents) fell below that value in 2013.
- Zinc toxicity – Zinc can cause fatal anemia or gastric ulceration in pets that inadvertently ingest pennies made after 1982.
Arguments for preservation
- Consumers and the economy – Research commissioned by the zinc lobby and its front groupAmericans for Common Cents concludes that were the penny to be eliminated, consumers might be hit with a "rounding tax". The paper stated that rather than eliminate the penny, it could make more sense to change the composition of the penny to a cheaper metal than zinc if the costs of zinc do not come down and there continues to be a significant loss per penny.
- Popular support – A poll conducted June 9–11, 2006, by USA Today/Gallup, found that 55% of the American public considered the penny to be a useful coin, while 43% of those surveyed were in favor of abolishing the coin.
- Increased cost – A report by Navigant Consulting commissioned by Jarden Zinc, which supplies zinc to the Mint, found that the government would lose money without the penny. According to Americans for Common Cents' website, "First, the Mint's fabrication and distribution costs include fixed components that will continue to be incurred whether or not the Mint produces the penny. Navigant estimates this fixed component at $13 million in FY 2011. Plus, there is $17.7 million in Mint overhead allocated to the penny that would have to be absorbed by the remaining denominations of circulating coins without the penny. Second, under current Mint accounting, the nickel costs eleven cents to manufacture. In a scenario where nickel production doubled without the penny, Navigant concludes that with existing fixed costs, eliminating the penny would likely result in increased net costs to the Mint of $10.9 million, relative to the current state."
- Rounding hurts the poor – Millions of transactions are conducted each day in the US economy, and with 26% of Americans either not having savings or checking accounts or relying on payday lending services, there are many cash transactions taking place involving American citizens each day. Federal Reserve studies have shown that people with relatively low incomes use cash more frequently than individuals with higher incomes. Since only cash transactions will be subject to rounding, a 2001 study indicates that any move to eliminate the penny may disproportionately hurt "unbanked" Americans who have no other option and lack the means to make non-cash transactions. The study, authored by Raymond Lombra, concluded that eliminating the penny would impose a "rounding tax" of at least $600 million per year on American consumers. Canada's elimination of the penny, however, rounds cash transactions both up and down.
- Honoring Lincoln – Penny proponenets often argue the penny honors Abraham Lincoln, the 16th president of the U.S. Penny opponents counter this by pointing out that Lincoln is on the five-dollar bill.
As of 2016[update], nickels cost around 6.32 cents to produce, providing an argument for elimination similar to the penny's production at a loss. The nickel's face value is also well below that of the lowest-denomination coin (the penny) at the time of the half-cent's elimination in 1857. Unlike the penny, the nickel is also mostly redundant (when exchanging dollars and cents, if is not 5–9 or 15–19, the amount can be given without nickels and still weigh less, with at most one additional coin, than if a nickel is included) and less commonly used; the nickel is nonetheless accepted by most vending machines while the penny is not. No bills have yet been proposed to remove the nickel from circulation.
Economist François R. Velde has suggested an alternative plan in which the government would make the penny worth five cents. This change would cause minor monetary inflation of $5.6 billion.
Congress passed the Coin Modernization, Oversight, and Continuity Act of 2010 requiring Treasury reports on possible new metallic coin materials.
Precedents in other countries
See also: Withdrawal of low-denomination coins
Many countries outside the United States have chosen to remove low-value coins from circulation:
- Until 2012, Canada minted a one-cent coin of similar size and color as its American counterpart, with steel as the interior metal instead of zinc, though composition was near identical to US cents prior to 2000 and so it circulates at par in small quantities in the United States (and vice versa). However, on March 29, 2012, the Canadian government announced that it would eliminate the penny from the coinage system. The final Canadian penny was minted on May 4, 2012 and active distribution of the coin by the mint was discontinued on February 4, 2013. Since that date, businesses were encouraged to begin rounding cash transactions only to the nearest five-cent increment. Cheques and transactions using electronic payments – debit, credit and payments cards – are not rounded.
- New Zealand eliminated one- and two-cent coins of the New Zealand dollar in April 1990, and the five-cent coin in October 2006.
- Mexico's new peso transition in 1993 made the five-centavo coin the smallest denomination of the new currency. In 2009, new coins were minted only for the ten, twenty and fifty centavo denominations.
- At US military bases overseas, AAFES round up or down to the nearest 5 cent denomination.
However, many nations still use coins of similar or smaller value to the US cent. In some cases, while the nominal value of the coin may be smaller than that of a US cent, the purchasing power may be higher:
- The Republic of Korea (South Korea) stopped minting 1-won and 5-won coins, but 10-won coins (worth about US$0.01) are still minted with changing composition and used only in supermarkets.
- Some countries in the Eurozone use 1- and 2-cent coins. As posted prices generally include taxes, it is possible (but not standard) for vendors to round prices to the nearest five cents and eliminate the need for smaller-value coins. However, Finland, Ireland and the Netherlands have abandoned the use of 1 and 2 cents altogether. Finland only ever produced a small number of one cent coins, mostly for collecting and legal reasons.
- Panama and Ecuador, which use the US dollar as their currency, mint their own coins including 1-centavo pieces identical in size to the penny. However, prices for many goods and wages are lower in those countries compared to the US.
Laws regarding melting and export
On April 17, 2007, a Department of the Treasury regulation went into effect prohibiting the treatment, melting, or mass export of pennies and nickels. Exceptions were allowed for numismatists, jewelry makers, and normal tourism demands. The reason given was that the price of copper was rising to the point where these coins could be melted for their metal content. In 1969, a similar law regarding silver coinage was repealed. Because their silver content frequently exceeds collector value, silver coins are often sold by multiplying their "face value" times a benchmark price that floats relative to the spot silver price per ounce. According to US law, US citizens are allowed to melt foreign coinage (e.g. Canadian pennies) for personal or commercial use.
- ^Weinberg, Ali (2013-02-19). "Penny pinching: Can Obama manage elimination of one-cent coin?". NBC News. Retrieved 2013-02-20.
- ^ abNicks, Denver (April 20, 2016). "Even the U.S. Treasury Secretary Wants to Scrap the Penny". Time. Retrieved May 31, 2016.
- ^H.R.3761 – Price Rounding Act of 1989 (Introduced in House – IH)
- ^Legal Tender Modernization Act of 2001, HR 2528
- ^Christian Zappone (2006-07-18). "Kill-the-penny bill introduced". CNN Money. Retrieved 2007-03-21.
- ^"Nickel for your thoughts? US bill seeks penny's end". Reuters. 2006-07-20. Retrieved 2006-07-20.
- ^COINS Act Reforms Wasteful $1 Presidential Coin Program
- ^ ab"2016 Annual Report"(PDF). United States Mint. p. 6. Retrieved December 10, 2017.
- ^"United States Mint Moves to Limit Exportation & Melting of Coins". 2007-04-17.
- ^"May 2011 National Occupational Employment and Wage Estimates United States". U.S. Bureau of Labor Statistics. 2011-05-01. Retrieved 2012-04-09.
- ^Mallaby, Sebastian (2006-09-25). "The Penny Stops Here". The Washington Post. p. A21. Retrieved 2007-08-09.
- ^Mankiw, Greg (2006-09-25). "How to Make $1 Billion". Greg Mankiw's Blog. Retrieved 2007-08-09.
- ^"The Penny's End Is Near". Consumer Affairs. 2006-07-19. Retrieved 2007-08-09.
- ^Barrett, Maggie (July 18, 2006). "Professor's research supports eliminating penny". Wake Forest University. Retrieved January 17, 2015.
- ^Mankiw, Greg (2006-12-31). "Resolutions for Another New Year". Greg Mankiw's Blog. Retrieved 2009-12-28.
- ^Robert Whaples, "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, vol. 33, issue 1, pp. 139–146 (2007).
- ^ abchttp://data.bls.gov/cgi-bin/cpicalc.pl CPI Inflation Calculator
- ^ abc"Archived copy". Archived from the original on July 21, 2007. Retrieved 2006-06-18. The Inflation Calculator
- ^Managing Change: Is the Penny Worth Keeping? with Raymond Lombra, an economics professor at Pennsylvania State University, and Robert Whaples, a professor and chairman of the economics department at Wake Forest University
- ^Carrol, Joseph (July 17, 2006). "Americans For Common Cents: 66% of Americans Favor Keeping the Penny". Gallup. Retrieved June 3, 2016.
- ^"Penny Profitability: What Does it Really Cost to Make a Penny?". Americans for Common Cents. Retrieved November 13, 2015.
- ^Navigant Consulting: Impact of Eliminating the Penny on the United States Mint's Costs and Profit in Fiscal year 2011 by Rodney J. Bosco and Kevin M. Davis
- ^Raymond Lombra (Fall 2001). "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis"(PDF). Eastern Economic Journal. Retrieved December 27, 2015.
- ^"Zinc supplier paying thousands to save penny". The Dallas Morning News. 2007-08-19. Retrieved 2010-02-08.
- ^Goolsbee, Austan. New York Times, 2007-02-01. "Now That a Penny Isn’t Worth Much, It’s Time to Make It Worth 5 Cents". Retrieved 2007-11-30.
- ^Smith, Teresa (March 29, 2012). "Budget: Penny pinch — Canada to phase out the copper coin". Postmedia News. Retrieved March 29, 2012.
- ^"Canada's Last Penny: Final Cent Struck In Winnipeg Friday As Currency Killed". Canadian Press/Huffington Post Canada. 2012-05-04. Retrieved 2012-05-04.
- ^Schwartz, Daniel (February 1, 2013). "Obituary: Canadian penny, 1858–2013". CBC News. Retrieved February 4, 2013.
- ^Phasing Out the Penny, Royal Canadian Mint. Retrieved 2014-04-03.
- ^History of New Zealand CoinageArchived January 23, 2009, at the Wayback Machine., Reserve Bank of New Zealand. Retrieved 2008-01-02.
- ^Anuncio de cambios al actual cono monetario, Banco de México. Retrieved 2010-12-27.
- ^ccessional record – House of representatives March 19, 2002, gpo.gov, page H959 (page 21 of the PDF).
- ^Swedish rounding
- ^"United States Mint Limits Exportation & Melting of Coins". Press Release and Public Statements. United States Mint. 2007-04-17. Retrieved 2007-08-28.
- ^The United States Mint Pressroom: United States Mint Moves to Limit Exportation & Melting of Coins
- ^http://www.coinflation.com/coins/silver_coin_calculator.htmlHartford Advocate: News – Penny Ante Profits
- ^https://www.aol.com/article/2012/05/11/should-you-melt-down-pennies-for-profit-not-u-s-pennies-but/ Should You Melt Down Pennies for Profit? Not U.S. Pennies, But ...
Do you have a jar full of pennies taking up space on your dresser? That’s the usual home for the pennies that most Americans receive in change. Eventually, they get taken to a Coinstar machine to be redeemed or wind up breaking the dresser under their massive weight.
Virtually nobody carries pennies around in their pocket for payments, unless they have just received some in change from a previous purchase. Oftentimes, we throw them in a penny jar at the counter, valuing not carrying them over owning them. In addition, it costs taxpayers more than a penny to mint one!
Is it finally time to say goodbye to the penny? Polls have varied throughout the years but generally fall in favor of keeping the one-cent coin. If you have never given the continued existence of the penny any thought, here are some of the considerations in whether to keep or get rid of it.
Prices and Use in Commerce
It’s true that pennies are rarely offered as payment anymore, and they play no role at all in the increasing number of credit or electronic payment methods. However, eliminating pennies would result in a “round-up” in cash transactions to the nearest nickel after taxes — in essence, creating a small penalty for using cash. Such a penalty would harm lower-income consumers the most, who tend to use cash for more transactions.
A study in 1990 found that rounding would cost consumers approximately $600,000 per year, while a later study concluded that after taxes and fees are included, consumers would essentially break even and potentially come out slightly ahead. The discrepancy is rooted in a series of assumptions by each researcher.
It costs more to make pennies than they are worth, and it has for years. In 2006, the production cost due to metal prices and other factors crossed over the penny mark to 1.12 cents per penny produced. The cost has been as high as 2.41 cents per penny produced, and entering 2015, it was 1.67 cents per penny.
Since pennies rarely circulate, banks have to order more of them to replenish the stock compared to other coins. Pennies constitute over 60% of all coins minted in 2014, meaning more pennies were minted than all other denominations combined. With over 8 billion pennies produced in 2014, it costs us approximately $53 million dollars just to make them (considering the value of the coins). Losses since 2011 are in that same general range.
It seems like a no-brainer to eliminate the penny — until we realize that the nickel is even less profitable. Each nickel costs about 9 cents to produce due to their larger size and higher copper content. Penny advocates rightly point out that more of the less-economical nickels would be necessary if the penny were abolished.
Nickels currently circulate more than pennies; thus, it could be argued that the reuse is worth the extra cost — unless people begin hoarding nickels once the penny disappears. Perhaps the argument should be to eliminate both the penny and the nickel. Dimes and larger denomination coins cost less than their face value to produce.
Our neighbors to the north can be used as a guide. Canada halted production of its penny in 2013. Cash transactions are rounded up to the nearest nickel. There has been no discernible rise in collective prices as indicated by rising inflation, so if there were an effect, it was small and transient.
Even in our own country, we have experience with removing useless denominations. The half-penny was discontinued in 1857. At the time, it had more relative buying power than the penny does today.
It seems likely that the penny will be discontinued eventually, but there is not much momentum for abolition at the moment. It could be that pennies hang on until the date when the entire concept of cash goes away completely and all payment systems are digital. However, there’s no guarantee that saving your pennies for a long time will turn them into collectors’ items.
This article was provided by our partners at moneytips.com
Mutilated Currency 101
Fun Facts About U.S. Money
How the Dollar’s Value in Other Currencies Has Changed In This Millennium