The Penny Debate

There is currently some controversy over whether the lowest denomination US coin – the penny – should be eliminated from circulation. Has the penny become obsolete

From the perspective of the US Mint, the most basic argument for eliminating the penny is its cost. It now costs about 1.5 cents to produce a one-cent coin. The penny’s composition was changed from a bronze (95% copper) to mostly zinc in 1983 due to inflation and rising material prices. Nickels suffer from the same problem – they cost more than 9 cents to produce! A 2007 regulation prohibits the melting of US pennies and nickels; while some scrapping of pennies probably does occur, the illegality of the process does preclude a more widespread level of hoarding for this purpose.

Another argument in favor of eliminating the penny is that there has never been such a low-value coin in circulation. Due to inflation, the purchasing power of the penny has steadily declined, losing more than 80% of its purchasing power since 1972. The last time a low-denomination US coin was eliminated – the half-cent in 1857 – it had the purchasing power equivalent of almost 12 cents in today’s money. At that point, the penny had the same purchasing power as today’s quarter, and was the smallest coin in circulation!

Other developed countries have recently eliminated their lowest denomination coins. Canada eliminated its one cent coin in 2013. Australia and New Zealand each eliminated both one and two cent coins in the early 1990s; New Zealand also eliminated its five-cent coin in 2006. Many Eurozone countries have also eliminated one and two cent coins, though this process has varied by country.

How do transactions work in countries which have eliminated their lowest-denomination coins? For the most part, cash transactions are rounded to the nearest amount which allows exact change. For example, in Canada, where the five-cent coin is the lowest-denomination coin in circulation, prices are rounded to the nearest five-cent increment. However, electronic payments, check payments, and other payments which do not require an exchange of cash or coin are not rounded.

There is already some precedent for eliminating the penny: prices of goods at AAFES (Army & Air Force Exchange Service) posts on overseas US bases are already rounded off to the nearest five cents. Various legislation has been proposed since the 1980s – including a few bills introduced by one determined Arizona congressman, Jim Kolbe – but no law eliminating the penny was ever actually passed by Congress. Perhaps the greatest impediment to removing the penny is public support or simply ambivalence: a 2006 poll showed that a narrow majority of the public wished to retain the penny. Without decisive action, the penny will continue to be a part of the everyday pocket change for the foreseeable future.

  • Posted on August 21, 2017
  • By TPM
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