Business

Nickel-And-Diming The Penny Into Irrelevance

MayorBob.

Posted to Business on Wed Mar 05, 2008 at 02:10:49 PM EST (promoted by 1fastdog). RSS.

When Secretary of the Treasury Henry Paulson talks money, people listen.  Paulson recently slammed the penny calling it "worth less than any other currency."  This piece of obviousness (the penny is the lowest piece of US currency) aside, perhaps it's time to think about doing away with the coin.

With the basic cost of zinc and copper, it currently costs the US Mint about 1.2 cents to produce one brown penny.  A little bit over 7 billion pennies are minted each year meaning it cost the taxpayers (US)$14 million just to circulate those pennies.  Zinc and copper are the two main metals in the nickel and, based upon the current metal content, it costs 7 cents to produce one five cent nickel.  With the number of nickels minted each year, that's another $14 million loss to the US taxpayer.  Thus Francois Velde, an economist with the Federal Reserve Bank of Chicago has a novel idea -- make the penny the nickel and do away with currency denominated at one cent (pdf doc).

With both logic and the use of charts showing the relative value of the penny and the relationship of the penny to the GNP, Velde charts the penny's continuing irrelevance.  But, as in every issue, there's another side to the coin.  One penny advocacy group (yes there is such a thing) says the federal government lies about the cost of producing a penny and that the US economy hinges on a strong, secure penny.  Penn State economist Ray Lombro also opposes getting rid of the penny.  He supports the penny out of fear of a "rounding effect" which could occur with economic transactions sans pennies.  Lombro estimates that rounding effect might cost consumers $600 million annually.  Another economist, Robert Whaples, a supporter of doing away with the penny says the rounding effect has no effect if you look at real world data.  Whichever side you come down on in the penny goes/penny stays debate, it's not likely anything will be done about it before a new president takes the oath of office.  Secretary Paulson said he has "enough challenges to take on" for the time being.

Tags: written by MayorBob, edited by 1fastdog, US currency, penny, metal content, economics, US Mint (all tags)

This story: 29 comments (6 from subqueue)
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5

Is It Time This Time?

uncarved block.

Wed Mar 05, 2008 at 08:02:05 PM EST

5.00 (informative)

    I seem to recall having heard arguments along this line ever since the late 80s-- and that doesn't mean that the notion hasn't been around longer, as I wasn't that attentive back then. So let's just say that when it comes to killing the penny, I'll believe it when I see it.
    Why keep a useless old coin around, when it makes so much sense to let it go obsolete? Well, for one thing, 7 billion pennies is a fair amount of business right there, which means lost jobs, and more lost jobs all the way down the distribution chain. There's also the question of priorities: compared to stopping counterfeiters, producing coins and stamps, advising domestic policy, and all the other things the Treasury Department is tasked with on a yearly basis, it's easy to see why past proposals have come to naught, as even Paulson admits he's got a lot more on his plate. Legislation would be nice, but when even Barney Frank doesn't have the time to push a bill, you know it's not going to happen any time soon.
    And why not? Simply put, it's the word that floats around every lame-duck president, and this one is no exception: legacy. Which president really wants to have on his resume that he was the one that killed the penny? (Treasury is a cabinet level position, meaning the prez would be rather familiar with whoever made the decision, and hence get the credit/blame.) There's financial sense, and political sense, and this seems clearly a case where the latter trumps the former. Paulson could probably wipe out the penny next wee, if he really wanted, but in the end it would be Bush who'd pay-- and right now, this administration isn't looking for too many more black marks to add to the reckoning.
    The next window for ditching the penny looks to be early 2013, assuming whoever wins in 2008 gets reelected; this is the kind of move that can only be pulled off without another election ahead.

Ex ignorantia ad sapientiam; e luce ad tenebras

6

^ 5

Penny sentiment

postillion.

Wed Mar 05, 2008 at 10:28:55 PM EST

none

Why are so many people sentimental over the penny anyways?  

If it's over old Abe, why not just put him on a dollar coin?

7

^ 6

Re: Penny sentiment

joshv.

Wed Mar 05, 2008 at 11:08:37 PM EST

5.00 (informative)

"If it's over old Abe, why not just put him on a dollar coin?"

Yes please, he couldn't possibly be uglier than these guys: http://www.usmint.gov/mint_programs/$1coin/

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^ 7

Re: Penny sentiment

keta.

Thu Mar 06, 2008 at 03:24:11 PM EST

4.00 (funny)

I didn't realize Monroe, Adams, and Jackson were such heavy stoners.

9

^ 7

Re: Penny sentiment

postillion.

Thu Mar 06, 2008 at 01:46:18 AM EST

none

Those are pretty hideous.

The George Washington looks like a ghost with those orb eyes.

13

^ 7

Martin Van Buren????

thefadd.

Thu Mar 06, 2008 at 01:44:33 PM EST

none

Where's Millard Fillmore, then?

It is easy to buy small plaster models of what you think life is like.

20

^ 13

Re: Martin Van Buren????

slavdude.

Fri Mar 07, 2008 at 03:41:55 PM EST

none

Fillmore?  He's scheduled for 2010.  They're going in order of service.

Tomorrow I will be sober, but you will still be ugly.

29

You people are so weak

Lou.

Sun Mar 09, 2008 at 06:46:21 PM EST

5.00 (brilliant, funny)

Why is everybody afraid of a little change?

It's the end of the world as we know it, and I feel fine

1

Re: Nickel-And-Diming The Penny Into Irrelevance

thefadd.

Wed Mar 05, 2008 at 02:38:37 PM EST

4.00 (interesting)

What we do with change is a very interesting thing. I've read studies that men frequently just toss it away. We can get rid of the penny without getting rid of the 100's of a dollar denomination--so many transactions are done without cash these days. In fact, it would seem downright odd to have all my electronic transactions ending in .X5.

It is easy to buy small plaster models of what you think life is like.

8

^ 1

Re: Nickel-And-Diming The Penny Into Irrelevance

joshv.

Wed Mar 05, 2008 at 11:10:54 PM EST

3.00

I have a giant urn full of change.  My wife takes it into a Coin-Star machine every few years or so and pockets a few hundred dollars.  Pennies I doubt contribute much to that total.

12

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Re: Nickel-And-Diming The Penny Into Irrelevance

dzetetes.

Thu Mar 06, 2008 at 01:36:51 PM EST

5.00 (informative, informative)

If you have a bank account, your bank will usually take your loose change, pop it into their sorting machine, and credit your account (or give you cash) for the appropriate amount. They usually won't take out the 9% that Coinstar does, either. Mine never has, at least.

In regione caecorum, rex est luscus.

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Re: Nickel-And-Diming The Penny Into Irrelevance

MayorBob.

Thu Mar 06, 2008 at 03:34:42 PM EST

4.50 (interesting, interesting)

Every night I empty my pockets of coin.  I keep four quarters for the next day and pop whatever else was there into an old Jim Beam promotional bottle (we're talking jereboam-sized bottle here).  I'll count and wrap the coins every year before we go on vacation.  It's a lean year when I don't have close to $800 in wrapped coin.

I wrap them myself rather than Coinstar because, as you point out, they deduct a percentage.  I tried using a coin sorter at the Commerce Bank and it was off by a substantial amount.  I had them give me back the coin and I would have gotten stiffed close to $200 by the machine they used.  When I say I wrap the coin, I use a coin sorting machine I bought years ago and the only additional money that costs would be for the wrappers themselves.  I used to be able to cage a bunch of wrappers out of my bank manager but they've changed their philosophy on that.  So I go to the Dollar store and get 50 wrappers for a buck.

Illegitimi non carborundum.

2

Re: Nickel-And-Diming The Penny Into Irrelevance

skeeter1.

Wed Mar 05, 2008 at 02:48:15 PM EST

4.00 (informative)

Well, at one time there was a half-penny coin.  I believe it went away a couple of centuries ago.

Why not get rid of the penny?  Any longer, I buy everything with a credit card.  Change, especially pennies, are more of a pain in the ass than anything else.  Go ahead and get rid of them.  

there's only one way to find out...

3

Why stop at the penny?

gameCoder.

Wed Mar 05, 2008 at 03:55:59 PM EST

3.00

I vote we get rid of the penny, the nickel AND the dime!

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^ 3

Re: Why stop at the penny?

postillion.

Fri Mar 07, 2008 at 07:50:35 PM EST

4.00 (interesting, informative)

I vote we get rid of the penny, the nickel AND the dime!

Personally, being in sales and marketing, I am against that idea.  Everything priced in my industry ends in .95 based on people's perception that when they pay $12.95, they are pricing down to $12 rather than up to $13....stupid trick, but amazing how well it works.

And if I priced down to $12.75, I'd be losing 12 cents per unit (based on wholesale price, not retail price) which can add up to thousands of dollars.

4

^ 3

Re: Why stop at the penny?

thefadd.

Wed Mar 05, 2008 at 05:22:30 PM EST

3.00

If we get rid of the penny, we should almost certainly do away with the nickel. It's ridiculously heavy and I'd rather have four pennies than one nickel because they're more versatile and I can use them to make change and not be given more pennies.

It is easy to buy small plaster models of what you think life is like.

10

What happened to the dollar coin?

skeeter1.

Thu Mar 06, 2008 at 01:13:15 PM EST

none

This thread got me to thinking (always a dangerous thing), but whatever became of the dollar coin?  Susan B. Anthony, Sacagawea, et. al. seemed like good ideas.  Average lifespan of a coin is ~20yrs, average lifespan of a dollor-bill is ~18 months.

Is it just because they wouldn't work in just about any vending machine?  

there's only one way to find out...

11

^ 10

Re: What happened to the dollar coin?

dzetetes.

Thu Mar 06, 2008 at 01:33:55 PM EST

none

Many Canadian vending machines have taken Canadian dollar coins (the infamous loonie) for a long time.

I wouldn't be surprised if the inconvenience and cost of switching out machinery to accept dollar coins is a major consideration in retaining the paper dollar, however.

In regione caecorum, rex est luscus.

15

^ 11

Re: What happened to the dollar coin?

skeptic.

Thu Mar 06, 2008 at 03:22:10 PM EST

none

Re-tooling the vending machines does cost money, however, higher denomination coins are good for the vending machine business, because the coins are easier to use; very little is sold for just a quarter these days.  Feeding a dozen quarters into a vending machine is rather tedious.  (Although credit-card operated machines are an alternative.)   Anyway, I don't believe that the vending machine lobby has any great clout in Washington.

The main reason why the Canadian loonie has become fully accepted and has completely replaced the Canadian paper dollar, while the US dollar coins have failed, is that the loonie is substantially larger than the quarter and is also a different color (bronze) so that there is no risk of mistaking it for a quarter, whereas the recent US version is only slightly larger than a quarter, and is the same color, thus it is easily mistaken for a quarter, which is annoying (there also used to be a very large American dollar coin, bigger than the loonie, which ceased to be used around 1964 when coins switched over from silver to nickel-copper).  

Canada also has a two dollar coin now, introduced some years after the loonie (and informally known as the twonie) which is only slightly larger than the loonie, but is very easily distinguished from the loonie because it is in two colors, with a bronze inner section and a silvery outer section.  Canada does not yet have a five dollar coin, but that does seem to be a likely development for the future.  Coins are so much more durable than paper bills that they are a very attractive option.

18

^ 15

Re: What happened to the dollar coin?

thefadd.

Thu Mar 06, 2008 at 03:42:18 PM EST

none

They ought to make one like the old ten franc piece that had a silver center with a sizable gold band around it. The smooth edges and gold collor of the Sacagawea dollar distinguish it from the quarter but I still found it too large and heavy for practical daily use.

It is easy to buy small plaster models of what you think life is like.

19

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Re: What happened to the dollar coin?

skeptic.

Fri Mar 07, 2008 at 09:33:22 AM EST

none

Yes, the Sacagawea version should have worked.  I have never actually seen one, I have been out of the US for too long.

There is some technical difficulty, as you point out, in carrying around coins which are large and heavy.  I don't think that the weight is actually too much to carry.  I don't know what the average weight of an American citizen is these days, let us say 180 pounds.  If an 180 pound person had to carry an additional pound of coins (and a pound is really a lot, as coins go, usually you would have less) it would not make a real difference.  But coins do tend to fall out of your pockets if you are not careful, and don't easily fit into the tiny coin compartments that many wallets have.  I personally have a small but adequate coin purse, which is separate from the bill-fold in which I carry paper currency.  It is a little pouch, closed by a zipper.  I used to use those flat silicone ovoids that you just squeeze to open, but I find that over time they get progressively stiffer until they become unusable; also they are not quite big enough for the quantity of coinage that I often accumulate.

It is important to have some awareness of the quantity of coins that you are carrying, so that you don't just endlessly acquire more when you obtain change from purchases that you make with paper currency, without ever spending the coins.  I spend them whenever I am buying something that is within the price range of my current coin supply, so they don't accumulate.  I never have more than about $10 of coins at a time, and usually less.

Paper money has its own annoyances.  It gets folded, wrinkled, torn, stained, written upon by inconsiderate people, it absorbs moisture, etc.  It is terribly vulnerable to damage, as compared to coins.  Coins can also be damaged, but not nearly as easily.  So, I like coins.  Of course, for larger transactions, paper is still better.  Although for really large transactions we have to go to credit cards or checks.  But coins have a useful role to play.

Pennies, however, I would not miss, were they to be eliminated.  The actual value of a penny is now so small, after all these years of inflation, that it seems ridiculously petty to even bother with it.  But we still do.  If an item costs (let us say) $78.36, you have to pay every penny of that amount; $75.35 would not do.

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Re: What happened to the dollar coin?

skeeter1.

Fri Mar 07, 2008 at 04:52:55 PM EST

none

"Paper money has its own annoyances.  It gets folded, wrinkled, torn, stained, written upon by inconsiderate people, it absorbs moisture, etc."

Oh, I'm going to be getting the misogynistic lamb-basting for this one, but...

I've seen far too many young ladies (and only young ladies) wad-up paper money and pretty much ruin it.  Men and older women stick the bills in a wallet, and it probably lasts a lot longer that way.  

OTOH, I've gotten lots of $20 bills that were stained with the dye-packs from robberies, and I'm told that many bills are tainted with cocaine residue.  

For the time being, I'll just keep using a credit card.

there's only one way to find out...

25

^ 21

Umn, Sorry

uncarved block.

Fri Mar 07, 2008 at 08:10:02 PM EST

4.00 (funny)

   I've worked retail for the last couple years, and part of that at the cash register (less than 30 minutes a week, but it adds up over six years.) The money crunching you describe happens with both sexes, though if you wanted to say it was more common with the young, I'd have to agree. But I've stood there and watched some dude pull wads of cash out of a front pocket to pay for a video game more than once . . .

    Worst story I've ever heard, on the "ruined money" line, was a gent who bicycled, and kept his money in his sock.

    In Tucson, Arizona.

    In the summer.

    From what I was told, they let the bills dry for two hours before even trying to put them in a register.

Ex ignorantia ad sapientiam; e luce ad tenebras

22

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Re: What happened to the dollar coin?

thefadd.

Fri Mar 07, 2008 at 05:50:09 PM EST

none

Yeah, I organize the bills in my wallet by denomination every time I have a transaction. My gf otoh will look at me like I'm crazy for doing this but then spend five minutes rooting through her wallet before pulling out a wad of crumpled up cash. As far as where they've been...Where's George? is a site that always seemed cool but could never really maintain my attention.

It is easy to buy small plaster models of what you think life is like.

24

^ 22

Re: What happened to the dollar coin?

skeeter1.

Fri Mar 07, 2008 at 07:51:41 PM EST

none

"Yeah, I organize the bills in my wallet by denomination every time I have a transaction."

Well, when I have to use cash, I do the same thing.  Bills in the wallet run from singles in the front to 50s in the back.  That's the way I learned it from my dad, and I can't escape it.  That style has worked well for me for 54 years, so I see no reason to change.  ;-)

there's only one way to find out...

26

^ 21

Re: What happened to the dollar coin?

ms sue.

Sat Mar 08, 2008 at 03:59:59 PM EST

none

I can speak with some authority to this wad problem: I never had it until I recently bought the cutest little tiny red leather wallet that has these really neat, accordion-like slots for credit cards -- much easier to see them and remove them. Plus, the wallet is so small that it fits any handbag or even my pocket. And it has a picture slot for my DL on the outside...as well as a gussetted coin pocket.

But the problem, as you've already surmised, is that the only space for paper money is one in which you have to fold it. I hate that and am embarrassed when I pull out this mess of cash, dropping bills as I do so.

It's so stinking cute, though. Gosh, I love being a girl... well, okay, so no, I'm not in your demographic, sad to say. And at my age, my money might as well be wrinkled too.

27

^ 26

Re: What happened to the dollar coin?

skeeter1.

Sat Mar 08, 2008 at 11:49:29 PM EST

none

"Gosh, I love being a girl... well, okay, so no, I'm not in your demographic, sad to say. And at my age, my money might as well be wrinkled too."

God bless you, Sue.  At least you're honest about it.  It's just that I saw so many 20-something women where I used to work who literally wadded-up bills (not fold) that I could scream.  It would be better if the dollar coin would catch on, though.  They'd still fit in your little leather wallet.  ;-)

there's only one way to find out...

28

^ 27

Re: What happened to the dollar coin?

ms sue.

Sun Mar 09, 2008 at 12:15:32 PM EST

none

At least you're honest about it.

Not sure whether you're referring to my wrinkled wad or my...well, anyway, thanks.

14

^ 10

Re: What happened to the dollar coin?

thefadd.

Thu Mar 06, 2008 at 01:45:40 PM EST

none

I used to use the Sacagawea when I took the subway. If you put in a $20 bill, it gave you change back in the dollar coins. They were pretty cool to have around cause I wouldn't usually spend them until I had to.

It is easy to buy small plaster models of what you think life is like.

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