THE STUDY MARCH 30, 2012
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Yesterday the Government of Canada announced it was eliminating the penny from Canada’s coinage system. The provided reasons: Its declining spending power, rising production costs (1.6 cents per penny), and the harsh reality that “some Canadians consider the penny more of a nuisance than a useful coin.” Likewise, other countries have been re-evaluating their lowest-denomination coins, with Australia, Norway, and Switzerland among those that have already stopped circulating them. In the U.S., President Obama asked Congress for permission last month to change the metal composition of pennies and nickels: It currently costs the U.S. Mint 2.4 cents and 11.2 cents to produce each penny and nickel, respectively. Pennies may lead sad, pointless lives, voyaging from one leave-a-penny/take-a-penny tray to another. But would plans to put them out of their misery have regressive effects?
A 2001 economic analysis by Penn State’s Raymond Lombra found that a post-penny economy—in which we round to the nearest nickel—would probably hurt the poor disproportionately. In theory, rounding would balance itself out over time—with some transactions rounding up and others rounding down. Lombra’s simulations, however, which were based on the price book of a major retail chain, found that between 60 and 93 percent of transactions would round up, costing consumers nearly $600 million a year. Because the poor tend to use cash more often, they would shoulder most of that burden. Penny for your thoughts…
11 comments
So, $600 million a year, divided by 310 million Americans, comes to...$1.94 annually for each person. I think even the poorest of the poor can afford that, or even double or triple that.
- benjamin81
March 30, 2012 at 6:16pm
Wrong, biased argument. That Lombra paper (itself quite biased) was written under the assumption that the government was still producing pennies at cost below a penny each (that is, actually making money from the coinage)-- now that things seem quite different, the government would save hundreds of millions a year just for not coining them anymore.
- involution
March 30, 2012 at 6:35pm
Benjamin seems to have a point. If I can not immediately give them away or deposit them into a penny tray, I throw away every penny I touch. Some nickels, too, depending on the situation. I don't carry change in my pockets. I hate pennies. Kill them all, I say.
- Konstantin
March 30, 2012 at 6:38pm
Benjamin: awesome post. And I agree with Konstantin. Kill them pennies. They're so annoying, nearly worthless, and it's frustrating to know that they cost as much as they do to mint.
- Curran1
March 30, 2012 at 10:01pm
Robert Whaples of Wake Forest dismantled Lombra's paper in the 2007 Eastern Economic Journal. Instead of Lombra's simulation exercise, Whaples looked at actual POS data. He found no evidence of a "rounding tax," let alone a regressive one. He noted that even if there were a rounding tax, it'd cause a one-time increase in prices, not a sustained inflation. And he made the same point as involution above: Lombra claimed that the government would be hurt by lost seignorage if it no longer minted pennies, but the problem now is that seignorage is negative. Pitch the penny! I have another angle on this, from a newspaper article I wrote a few years back: "Pennies do little but sit in glass jars waiting to be cashed in and in little dishes on store counters waiting to be grabbed by whoever needs one. What do you call a commodity that's left out for anyone to take? Free! And free means without value. All we use pennies for is to make cash transactions come out exactly right. This lone use becomes even less valuable as more and more of us use debit and credit cards to make small purchases."
- acbrod
March 30, 2012 at 11:34pm
decrease the amount each year until the penny fades away. In Mexico you hardly ever see a 10 centavo coin, the smallest common coin is the 50 centavo one. whenever the cash register rings up a price outside of that range it simply rounds it out. pennies can still be produced and in circulation, but only the most anal would demand exact change as stores would start to carry only a couple of rolls of pennies and the clerk would have to hunt the one or two down. I think that wasted time would wean even the cheapest person away from it.
- blackton
March 31, 2012 at 10:03am
I keep pennies. Pennies are money. 100 pennies = $1.00. But then I got a jar of pennies my grandmother had carefully saved when I was born, an hour before my cousin. I liked the big pennies they had, with pictures of the Queen. Some of my pennies were black, from 1943.
- Sophia
March 31, 2012 at 12:35pm
Save your pennies. As soon as they become valueless, or as soon as they are removed from circulation, they will become valuable again, as collector's items. Though it may take thousands of years. I am right now looking at an "Imperial Roman Coin Silver Denarius of Marcus Aurelius" for sale on eBay (move fast, the auction closes in about 7 minutes). "Offered is this superb Silver Roman Coin. It is a Denarius of Marcus Aurelius and dates to c AD 162. The obverse shows the superbly detailed laureate bust. The reverse shows Concordia seated left holding Patera and resting on Statue of Spes with Cornucopiae below seat. This coin is in superb condition. I would grade this as Good F at least but please check out the detailed scan / photos of this coin to determine ID and condition for yourself" says the description. For sale for GBP 71 [about $12 American money). That's a lot of pennies! If you had put one Denarius in the bank at whatever the compound interest rate was in 162, what would it be worth today? Nothing, obviously; they didn't pay interest during the Dark Ages.
- skahn
April 1, 2012 at 4:29pm
Get rid of the penny, the nickel, the dime, the fifty cent piece, the dollar bill, the five dollar bill, and the twenty dollar bill. Mint a small 2 1/2 cent piece, quarters, and dollar coins only. Print only $10 bills, $25 bills, and $100 bills. Your wallet will be thinner, your change purse or pocket lighter, and the savings will be in the billions.
- roidubouloi
April 3, 2012 at 1:06am
If we learned then to quote prices as dollars and the number of 2 1/2 cent pieces (new pennies), it would be even better. $1.39 would be $1.975 in today's prices.
- roidubouloi
April 3, 2012 at 1:08am
The new quarter could read both Quarter Dollar and Ten Pence to help the arithmetically challenged.
- roidubouloi
April 3, 2012 at 1:11am