Those of you living in the U.S.: raise your hand if you have hundreds and hundreds of pennies in jars at home? I thought so. Me too. They are a nuisance. It's time to remove them from circulation. When I did a little research on this, though, I found that not a lot of people agree with me, including the government. But, as I also found, they may be biased.

I started thinking about this last summer when I was living in London, where I really enjoyed carrying around change that could actually buy me something. A two-Pound coin is worth roughly $3 US. You have no idea how thrilling it is as an American to walk into a pub and purchase a pint of beer with change. Until the recent run of the new "golden dollar" coin (still not in wide circulation), the largest-denomination coin an American is likely to be carrying around is a quarter.

That led me to think about inflation and buying power. You don't have to go back that far to find a time that a penny had the buying power that a nickel, even a dime, has now. If there was no great need for tenth-of-a-penny coins then, we shouldn't need pennies now. That and the nuisance factor is where the debate starts and stops with me; I'm tired of carrying around worthless objects, and when I refuse to do so out of principle, more of them accumulate as I buy things. Grrrr.

The public debate is more complex. Surveys show that the public is, for the most part, rather strongly opposed to eliminating pennies. A 1991 Gallup poll found that 91% of the public agreed the penny was a "long-standing tradition in this country", and 61% opposed decirculation. The most frequent reason for opposition (77% of those polled) was the fear that the elimination would force retail prices up from rounding. This isn't true, of course: consumer and merchant have equal chances during rounding.

There are consumer and trade groups that support elimination, though: the Coin Coalition, (www.coincoalition.org), an industry trade group, lists several reasons:

The above may seem like, well, penny pinching on the part of the retailers, but that sort of thing adds up.

Of course, there are also industry groups that strongly support the penny: one prominent one is "Americans for Common Cents", which is (surprise!) a zinc industry trade group (pennies are 97% zinc, with a copper coat. Pre-1982, it was the reverse and they were mostly copper). On their website (www.pennies.org) they list several bullet points in support of the penny. Among these are:

  • Pennies facilitate commerce: The U.S. Mint produces roughly 13 billion pennies annually
  • Elimination of the penny would increase prices
  • Charitable causes, which accept pennies as donations, would suffer
  • The penny "is part of our nation's history and culture"
  • The U.S. Treasury makes a profit from the penny

Yes, you read that last one right. In fact, the U.S. Mint is asked often enough about penny decirculation that it is an item on the FAQ at their website:

We occasionally hear from people who believe that the Mint should stop producing one-cent coins and remove them from circulation. You may be interested to know that the penny is the most widely used denomination currently in circulation. There was a study conducted in 1976 of this and other suggestions regarding our coinage system. However, the idea of eliminating the penny received strong objections from an overwhelming majority of State revenue collection departments, retail firms, and commercial banks. Other objections voiced in later studies concerned the inflationary impact of such a proposal on prices and possible difficulties on collecting sales taxes.

It has not been confirmed that the penny has outlived its usefulness. Neither business nor the public as a whole has pressured for changes in the coin denominations in circulation today. In addition, our coin and currency system is among the most trusted in the world. The vast majority of users apparently are content with the existing coin denominations, including the one-cent coin. As a result, the Treasury Department has no plans now to cease production of the penny. In addition, such a change to the United States monetary system could not be done without prior Congressional authorization. If directed to do so by legislation enacted by the Congress and signed by the President, the Treasury Department would again study phasing out the penny. Since the demand exists and the Federal Reserve Banks require inventories to meet the demand, the United States Mint is committed to producing the penny.

Keep in mind when you read the above that any coinage taken permanently out of circulation is essentially equivalent to giving the government money. Now have another look at those penny jars you're never going to make a dent in.

Is anybody with me? A penny for your thoughts...


Sources:
  • U.S. Mint website, www.usmint.gov
  • "Penny Saved, Penny Yearned?", Ellen Sung, Policy.com
  • "Future of the Penny: Options for Congressional Consideration" (General Accounting Office Testimony, 07/16/96, GAO/T-GGD-96-153)
  • Americans for Common Cents, "Ten Reasons to Keep the Penny", www.penny.org
  • The Coin Coalition, www.coincoalition.org

My two cents on the writeups below (such copious opportunities for puns!):

mblase: I agree that the cash register reprogramming issue is a hassle, but more and more registers are just computers these days, making it easier to fix. Other countries have done this, as dr points out. Besides, they don't have to be reprogrammed right away; until you reprogram the register you just round up or down from the price displayed. This is what happens anyway when sales tax is applied: $23.47 with 7% sales tax comes to $25.1129, but with the current 1-cent rounding you pay less: $25.11. Without pennies you would pay $25.10, an even larger savings. You would make money in that case. Rounding to any system -- 1, 5, 10 cents, whatever -- is mathematically fair in the long run, as SlightlyMadman and dr point out below. Besides, if there is a short-term artificial effect, it will be that things stores like to advertise as $N.99 will become $N.95, a 4 cent savings.

Remember that I'm saying that I'd like it to happen, not that I expect it to anytime soon. People don't like change (reverse-pun intended). Lots of people are sheep and wouldn't understand rounding, and would complain that they were being ripped off when 5.08 was rounded up but not blink when 6.22 was rounded down. Hell, the U.S. is the country that tried to convert to the metric system and failed. It probably won't go away until paper money goes away, which will be another big fight.

But I can't wait.

I'd love to take the penny out and convert our coinage to larger coins. There's only one problem: the mathematics of it.

If you remove the penny, then all the remaining coins become awkward multiples of five -- five-cent nickels, ten-cent dimes, twenty-five-cent quarters, and the occasional fifty-cent half-dollar. Every cash register in the country would have to be reprogrammed to round prices to the nearest multiple of five. You could also just chop off the last digit and convert everything to multiples of ten, but the same problem exists. The most practical option would be to convert everything to whole dollars, but too many goods still cost less than a whole dollar to make that possible.

The penny is necessary because American money is calculated to the nearest one-hundredth of a dollar, and therefore we need some coin to represent that exact value.

If you've got too many pennies in jars, do what I do: keep them in your pocket and spend them in stores to get exact nickels and dimes back. Or drop them in the tip jar at your favorite coffeeshop. Or keep them in your car -- automated toll booths, at least the ones in Illinois, accept pennies just like any other currency. It's valueable money, after all, not just circular dirt.

I agree with mblase that the difficulties in taking the penny out of circulation outweigh the benefits. You, personally, can remove their hassle from you life fairly easily, though. Whenever you get pennies as change, just drop them in the penny dish on the counter, or, if there's an abundance already there, take a few from it to make your change come out to the nickel. Or, just empty the pennies from your pocket into a jar when you get home, and make a trip to the grociery store every year or so, and use one of those automated coin-tallying machines that charge 5% or whatever, and you can go to the cashier and get real money for it.

This argument also becomes less and less significant as the dominant transactional method becomes an electronic one. I use my debit card for around 75% of the transactions I make today (gas, food, beer, electronics, etc.). About the only thing left that I use cash for is fast food (when's McDonald's going to start taking visa, anyways?), and to buy drugs.


briiiiian: Um, I hate to play devil's advocate here, but the sales tax in your state would remain at 7%. It would just get rounded if you only spent $1 (probably down, making the price $1.05). If you spent $10, your sales tax would bring the price to $10.70, which requires no pennies. Different amounts would round different ways, and it would all equal out to Uncle Sam getting about the same 7% in the end.
Actually, the fact that money is calculated to the nearest one-hundreth of a cent is irrelevant.

In Australia, they used to have a one cent AND a two cent coin, however when I was over there in 1995 they had gotten rid of both the one and two cent coins. Then, every transaction was rounded up or down to the nearest 5 cents. Trust me it was really nice to not have to carry around any pennies.

And as for having to re-program cash registers, well, here in Canada we went through that when the government introduced the country-wide sales tax known as the GST. Ya, it was a bit of a hassle (I was working at a drug store at the time) but in the end it's the cost of doing business. And, I'm sure in the the long run the cost of reprogramming will be outweighed by the savings of not not having to deal with pennies anymore.

No matter where public opinion lies on this issue, the fate of the penny will most likely rest with economic considerations. To generate the amount of public support required to remove the coin from circulation would be difficult, unless pennies began killing people. On the other hand, the economic impact of such a change, in regards to the business and consumer costs of implementing its removal would be difficult to quantify, and likely wouldn't provide a clear platform for either position.

There is one number, however, that the U.S. Mint does understand, as sockpuppet mentioned above. As long as it costs less than a penny to produce a penny, they have no reason to stop. The Mint sells its coins to us, and they make quite a healthy profit in the process. According to their 1999 annual report, they raked in over $1 billion in profit that year.

If you think about it, they're in a pretty comfortable spot. As a department, they have one basic job to do, and no competition. They are not, however, limited to this role, and in 1994, Director Philip Diehl took over and began reinventing the Mint as a profit-driven enterprise. In fact, his tenure at the Mint has left it looking more like a government sanctioned monopoly than a public service agency. The Sacagawea dollar alone earns the Mint a cool 88 cents per unit, the Mint has long been in the collecible coin business. In doing research for this writeup, I came across a Fast Company article about the agency that even mentions the Mint Police (what do you call them?) being turned into a federal rent-a-cop service.

So, is the solution to make it unprofitable to mint a penny? Before you run out and begin blowing up copper and zinc mines, there are two things to consider. First of all, the Mint makes enough money off useful coins to be able to absorb substantial losses. In the case of a sudden and violent increase in the price of raw materials (what with all them mines getting exploded), their profit margins might get trimmed a bit, while the pennies keep on coming. Based on 2001 production figures (a banner year for minting pennies), you'd have to drive the cost up over 11 cents per penny to get their financials in the red.

Not that it would ever come to that. Keep in mind that the composition of the penny could be unendingly altered to keep it cheap. You'll see a plastic penny before you see no penny at all.

So I suggest a compromise. Personally, I'm no friend of the penny. In fact, I've got my suspicions about nickels and dimes, too. However, it doesn't look like this Kato Kaelin of coinage is going away any time soon, but if it's going to stick around, why not make it a dual use tender?

Make them edible!

It's the best of both worlds, really. If you're an exact change nazi, you get to keep your pennies, but for the rest of us, we can eliminate that pesky coin in a tasty and efficient manner. We have the technology. Let's begin.


Sources:
  • www.usmint.gov
  • "Mint Condition", Anna Muoio, http://www.fastcompany.com/online/30/usmint.html
  • Random useless fact center, my brain
In Holland about fifteen years ago the cent was taken out of circulation, but prices ending on .99 stayed. When you purchase more than one item the total is rounded up or down. So buying one package of chewinggum for 0.99 gulden you pay 1 gulden but three of the same packages together cost 2,97 which is rounded down and sets you back 2,95.

It's really weird when you start thinking about it. But in the long run you pay nothing more or nothing less.

But since the introduction of the Euro this weird phenomenon has gone...

In many cases the penny has become worthless. I work at a restaurant in Michigan and even my managers have said that we do not need to count the pennies in the register because they are unimportant.

How does that affect the customers? Currently all of the employees now round up when giving out change to the customers. Who wants three pennies to put in their pocket after having just paid for food? It is much easier for both the customer and the person running the register to just give them an even amount. This is especially seen when the change is $0.73. Why hand out 2 quarters,two dimes and three pennies, when they can just have 3 quarters. As stated above the pennies don't have any significant buying power and could easily just be removed.

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