EFFORTS TO ELIMINATE THE PENNY IN THE UNITED STATES

A debate exists within the United States government, and American society at large, over whether the 1-cent coin, commonly known as the penny, should be 'eliminated as a unit of currency in the United States'. Two bills introduced in the U.S. Congress would have ceased production of pennies, but neither bill was approved.

Contents

Legislation

Arguments for elimination

Arguments for preservation

Other options

Precedents in other countries

Current Status

References

See also

External links

Legislation

In 2002, United States Representative Jim Kolbe (R-AZ) introduced the Legal Tender Modernization Act", and in 2006 he introduced the Currency Overhaul for an Industrious Nation (COIN) Act).^[1] Both bills failed to advance in either house, and died when Congress adjourned.^[2]

Arguments for elimination

★ 'Production at a loss' — By one accounting, as of July 2006 it cost more than 1.4¢ to manufacture and distribute a penny, which is sold for only 0.98¢ (in 2004).^[3]

★ 'Cost of production and soaring zinc prices' — As of May 15, 2006, zinc prices have risen to 0.9 cents per penny (more than twice the cost of the previous fall). The government spends another estimated 0.6 cents minting the coin, therefore losing money every time it mints a penny. Moreover, the Mint's official estimates understate its costs by allocating too little of its overhead costs to pennies.^[4][5]

★ 'Distribution costs' — The Federal Reserve incurs the costs of distributing pennies.

★ 'Lost productivity and opportunity cost of use' — With the average wage in the U.S. being about $17 per hour, it takes about two seconds to earn one cent. Because of this 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 U.S. per person is about $3.65,^[6] about $1 billion for all America.^[7] Using a different calculation economist Robert Whaples estimates a $300 million annual loss. ^[8]

★ 'Limited utility' — Pennies are not accepted by most vending machines, they are almost never accepted to pay a bus fare, and they are generally not accepted in bulk.   Moreover, people often don't use the penny to pay at all. They pay with larger denominations and get pennies in return which they store at home. The penny is by many not considered worth the effort of counting them in busy shops. However, vending machines of the United States Postal Service do accept pennies.

★ 'No higher prices' — Research by Robert Whaples, an economics professor at Wake Forest University, using actual data on nearly 200,000 transactions from a multi-state convenience store chain shows that rounding would have virtually no impact. Consumers would gain a tiny amount -- about one-fortieth of a cent per transaction.^[9]

★ 'Wrapping charges'

★ 'Gains from moving to a dollar coin' — Eliminating the penny will free up a slot in retailers' cash drawers, which may facilitate the adoption of dollar coins. The Federal Reserve estimates that society could gain about $500 million annually by the switch to a dollar coin.^[10]

★ 'Historic Precedent' — Historically, there has not been a coin in circulation in the U.S. worth as little as the penny is worth today. Due to inflation, as of 2006, a nickel is worth approximately what a penny was worth 35 years prior, in 1971. Additionally, the production of Half Cent coins had once been in practice, and was discontinued in 1857, despite having been worth eight cents in 2007 currency. In the 19th century other denominations, including two cent, three cent, and twenty cent coins, also ceased production. In the 20th century the U.S. removed all gold coins from circulation.

Arguments for preservation

★ 'Public demand' — A poll conducted by Coinstar, which converts change into paper currency for a fee, showed 65 percent of respondents favored keeping the penny in circulation. Lincoln Penny Still America’s Sweetheart Even Though it Doesn’t Make “Cents” Coinstar However, a CNN poll found only 38 percent support for the coin.^[11][12]

★ 'Higher prices' — Rounding to the nickel would effectively raise prices. Raymond Lombra, an economics professor at Pennsylvania State University, estimates using simulations from convenience stores that rounding would force an annual $600 million "rounding tax" on consumers;^[13] this amounts to about $2.00 per person per year. Subsequent research by Robert Whaples, an economics professor at Wake Forest University, using actual data on nearly 200,000 transactions from a multi-state convenience store chain shows that rounding would have virtually no impact. Consumers would gain a tiny amount -- about one-fortieth of a cent per transaction.

★ 'Targets lower class and charitable causes' — Elimination would hurt those who can afford it least: the poor and the elderly and charities. Increased prices due to rounding would fall disproportionately on those least able to afford it. Some organizations rely on donations from the collection of pennies.

★ 'Historical importance' — The penny was the first coin authorized to be minted by the government and it has been an integral part of the American experience.

★ 'Decrease dependence on copper' — The penny is 97.5% zinc,^[14] and its removal might require more nickels. The nickel is 75% copper, and copper is less abundant than zinc. (The cost to produce a nickel is also more than its worth, about 5.5¢.^[15])

★ 'Regional Support' — Since the Penny is graced by the bust of former President Abraham Lincoln, the State of Illinois (often known as the "Land of Lincoln") is perhaps the most vocal in their opposition of the ceasing of the penny. Most groups opposed to the ceasing of the penny are headquartered in Illinois or supported by Illinois citizens.

Other options

The economist François R. Velde has suggested an alternative plan in which the government would make the penny worth 5 cents. This change will add $5.6 billion to the money supply and therefore offset the increase in prices. Now That a Penny Isn’t Worth Much, It’s Time to Make It Worth 5 Cents austan Goolsbee

Precedents in other countries

Sweden removed the 1 and 2 öre coins from circulation in 1972 and by 1991 had also eliminated the 5, 10 and 25 öre coins, the same as with Norway, and Denmark (kept the 25 øre). New Zealand eliminated the 1 and 2 cent coins in 1987 and the 5 cent coin in 2006. Australia eliminated the 1 and 2 cent coins in 1991. The Dutch eliminated the 1 cent of the Gulden in 1980 and ceased issuing the 1 and 2 eurocent in 2006.
After removal of the low denominated coins, all countries adopted a method of rounding known as Swedish rounding.

Current Status

On April 17, 2007 a Department of the Treasury regulation went into effect which prohibited the hoarding, melting, or mass export of cents and nickels. Exceptions were allowed for collectors, jewelry makers, and normal tourism demands. ^[16] 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 the 1960s similar attempts had been made with silver coinage and they failed.

References

1. Kill-the-penny bill introduced
2. Nickel for your thoughts? US bill seeks penny's end
3. United States Mint Annual Report 2004 (pdf)
4. Coins cost more to make than face value
5. Time to kill off the penny?
6. The Penny Stops Here Sebastian Mallaby
7. How to Make Billion
8. The Penny's End Is Near
9. Topic Two: It's time to pitch the penny
10. Financial Impact of Issuing the New Coin United States General Accounting Office
11. Poll: Should the penny go? CNN Money
12. Poll: Should the penny be eliminated CNN Money
13. Statement of Raymond E. Lombra Before the Senate Banking Committee Americans For Common Cents
14. The Composition of the Cent United States Mint
15. A Penny Unsaved
16. United States Mint Limits Exportation & Melting of Coins

See also

★ Legal Tender Modernization Act

★ Coin Coalition

★ Cent (United States coin)

★ Swedish rounding

External links

★ Ban The Penny (''Forbes Magazine'')

★ Should the penny go? (''CNN'')

★ Americans for Common Cents, a pro-penny organization

★ Man tries to get rid of million pennies, USATODAY/AP, 7/1/2004

★ Not So Common Cents - shortage of pennies, FindArticles, August 16, 1999

★ Citizens for Retiring the Penny