Penny debate in the United States

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A proof-quality penny

A debate exists within the United States government, and American society at large, over whether the one-cent coin, commonly called 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. Such a bill would leave the nickel, at five cents, as the lowest-value coin. On 15 February 2013, President Barack Obama stated his willingness to eliminate the penny.[1]

Legislation[edit]

In 1990, United States Representative Jim Kolbe (R-AZ) introduced the Price Rounding Act of 1989, HR 3761 to eliminate the penny in cash transactions, rounding to the nearest nickel.[2] In 2001, Representative Kolbe introduced the Legal Tender Modernization Act of 2001, HR 5818,[3] and in 2006 he introduced the Currency Overhaul for an Industrious Nation (COIN) Act, HR 5818.[4] While the bills received much popular support from the public, and therefore from their representatives, the bills were not made to law when Congress adjourned.[5] There are public pressures on many Representatives to reintroduce these bills to the legislature. One such example is the constituency of the 2nd District of Colorado, represented by Jared Polis.[6]

Arguments for elimination[edit]

  • Production at a loss — As of 2013, it costs about 1.8 cents to mint a penny.[7] In 2007, the price of the raw materials it is made of exceeded the face value, so there was a risk that coins were illegally melted down for raw materials.[8]
  • Lost productivity and opportunity cost of use — With the median wage in the U.S. being about $17 per hour in 2011,[9] it takes about two seconds to earn one cent. Thus, 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. is about $3.65 per person annually,[10] about $1 billion for all of the USA.[11] Using a different calculation, economist Robert Whaples estimates a $900 million annual loss.[12] Additionally, Whaples argues that eliminating the penny would coax people into using $1 coins. The Federal Reserve says that replacing $1 bills with $1 coins would save an additional $500 million a year.[13]
  • Limited utility — Pennies are not accepted by all vending machines or many toll booths, and pennies are generally not accepted in bulk. Pennies often end up sitting in jars or are thrown away and are not in circulation. Economist Greg Mankiw says that "The purpose of the monetary system is to facilitate exchange, but... the penny no longer serves that purpose."[14]
  • Prices would not be higher — Research by Robert Whaples, an economics professor at Wake Forest University, using data on nearly 200,000 transactions from a multi-state convenience store chain shows that rounding would have virtually no effect. Consumers would gain a tiny amount – about 140¢ or $0.00025 per transaction.[15]
  • Historical precedents — There has never been a coin in circulation in the U.S. worth as little as the penny is worth today, although currently other countries have coins with less purchasing power in circulation. Due to monetary inflation, a nickel (5-cent piece) in 2007 was worth approximately what a penny was worth in 1972.[16] When the United States discontinued the half-cent coin in 1857, it had a 2010-equivalent buying power of 11 cents.[17][18] After 1857, the new smallest coin was the cent, which had a 2010-equivalent buying power of 23 cents.[18] The nickel fell below that value in 1974; the dime (at 10 cents) fell below that value in 1982; the quarter (at 25 cents) fell below that value in 2013.[16][18]
  • Zinc toxicity - Zinc can cause fatal anemia or gastric ulceration in children and pets who inadvertently ingest pennies made after 1982. Other coins can also be hazardous but pennies are particularly dangerous because of the zinc.[19]

Arguments for preservation[edit]

  • Consumers and the economy — Research by Penn State University Economist Ray Lombra in 1990 shows that were the penny to be eliminated, consumers might be hit with a "rounding tax". He further stated that rather than eliminate the penny, it could make more sense to change the composition of the penny to a cheaper metal than zinc if the costs of zinc do not come down and there continues to be a significant loss per penny.[20]
  • Popular support — A poll conducted March 22–25, 2012 by Opinion Research Corporation International on behalf of the zinc lobby and its front group Americans for Common Cents found over two-thirds (67%) of those surveyed favor keeping the penny in circulation.[21] The poll results showed 77% are concerned that if the government implements a rounding system for cash purchases, businesses might raise prices.
  • Increased Cost — A report by Navigant Consulting, commissioned by Jarden Zinc, which supplies zinc to the Mint (thus presenting a conflict of interest), found that the government would actually lose money without the penny. First, the Mint's fabrication and distribution costs include fixed components that will continue to be incurred whether or not the Mint produces the penny. Navigant estimates this fixed component at $13 million in FY 2011. Plus, there is $17.7 million in Mint overhead allocated to the penny that would have to be absorbed by the remaining denominations of circulating coins without the penny. Second, under current Mint accounting, the nickel costs eleven cents to manufacture. In a scenario where nickel production doubled without the penny, Navigant concludes that with existing fixed costs, eliminating the penny would likely result in increased net costs to the Mint of $10.9 million, relative to the current state.[22]
  • Price rounding cannot be done fairly — It has been argued that consumers will be hit with a "rounding tax" without the penny. The claim that rounding will have no appreciable effect on the consumer is predicated on the notion that there is an equal 10% probability of purchase prices ending in a particular digit. Americans for Common Cents claims there is no obvious incentive for businesses to set prices in a way that will lead to rounding down.[23]
  • Rounding hurts the poor — Millions of transactions are conducted each day in the U.S. economy, and with 26% of Americans either not having savings or checking accounts or relying on payday lending services, the amount of cash transactions each day is simply not dismissible. Federal Reserve studies have shown that people with relatively low incomes (particularly the young, elderly, and minorities) use cash more frequently than individuals with higher incomes. Since only cash transactions will be subject to rounding, any move to eliminate the penny would be regressive and hurt "unbanked" Americans who have no other option and lack the means to make non-cash transactions.

Nickels[edit]

As of 2013, Nickels cost around 9.4 cents to produce,[7] providing an argument for elimination similar to the penny's production at a loss. The nickel's face value is also well below that of the lowest-denomination coin (the penny) at the time of the half-cent's elimination in 1857.[16] Unlike the penny, the nickel is also mostly redundant (when exchanging d dollars and c cents, if c is not 5–9 or 15–19, the amount can be given without nickels and still weigh less, with at most one additional coin, than if a nickel is included) and less commonly used; the nickel is nonetheless accepted by most vending machines while the penny is not. No bills have yet been proposed to remove the nickel from circulation.

Lobbying[edit]

  • The sole provider of zinc "penny blanks", Jarden Zinc Products, has hired lobbyists to make the case for preserving the penny and their sales.[24]
  • The coin lobby Citizens to Retire the Penny [3]
  • In a 2015 survey regarding U.S. currency, 56% of coin and numismatic experts declared that they believe the penny will be phased out by the year 2026 (average).[25]

Other options[edit]

Economist François R. Velde has suggested an alternative plan in which the government would make the penny worth five cents. This change would cause minor monetary inflation of $5.6 billion.[26]

Congress passed the Coin Modernization, Oversight, and Continuity Act of 2010 requiring Treasury reports on possible new metallic coin materials.[27]

Precedents in other countries[edit]

Many countries outside the United States have chosen to remove low-value coins from circulation:

  • Until 2012, Canada minted a one-cent coin of similar size and color as its American counterpart, with steel as the interior metal instead of zinc, though composition was near identical to U.S. cents prior to 2000 and so it circulates at par in small quantities in the United States (and vice versa). However, on 29 March 2012, the Canadian government announced that it would eliminate the penny from the coinage system.[28] The final Canadian penny was minted on 4 May 2012[29] and active distribution of the coin by the mint was discontinued on 4 February 2013.[30] As of this date, businesses were encouraged to begin rounding cash transactions only to the nearest five-cent increment. Cheques and transactions using electronic payments — debit, credit and payments cards — are not rounded.[31]
  • New Zealand eliminated one- and two-cent coins of the New Zealand dollar in April 1990, and the five-cent coin in October 2006.[32] One and two cent pieces were eliminated even earlier from Australian coinage, and this was followed in the 2000s by elimination of the analogous 1 and 2 toea coin in neighbouring Papua New Guinea.
  • Mexico's new peso transition in 1993 made the five-cent coin the smallest denomination of the new currency. In 2009, new coins were minted only for the ten, twenty and fifty cent denominations.[33]
  • Most importantly, at US military bases overseas, AAFES round up/down to the nearest 5 cent denomination.[34]

However, many nations still use coins of similar or smaller value to the US cent. In some cases, while the nominal value of the coin may be smaller than that of a US cent, the purchasing power may be higher:

  • The Republic of Korea (South Korea) stopped minting of 1 won and 5 won coins, but 10 won coins (worth about US$0.01) are still minted with changing composition and used only in supermarkets.
  • The Eurozone uses 1 and 2 cent coins. As posted prices generally include taxes, it is possible (but not standard) for vendors to round prices to the nearest five cents and eliminate the need for smaller-value coins.
  • Japan continues to mint the 1 yen coin which is in regular usage at convenience stores.
  • Panama and Ecuador, that use the US Dollar as their currency, mint their own coins including 1-centavo ones that are identical in size to the US penny.

Laws regarding melting and export[edit]

On April 17, 2007, a Department of the Treasury regulation went into effect prohibiting the treatment, melting, or mass export of pennies and nickels. Exceptions were allowed for numismatists, jewelry makers, and normal tourism demands.[35] The reason given was that the price of copper was rising to the point where these coins could be melted for their metal content.[36] In 1969, a similar law regarding silver coinage was repealed. Because their silver content frequently exceeds collector value, silver coins are often sold by multiplying their "face value" times a benchmark price that floats relative to the spot silver price per ounce.[37] Interestingly enough, it is not illegal to melt a foreign currency. According to U.S. law, a U.S. citizen is allowed to melt foreign coinage (i.e. Canadian Pennies) for personal or commercial use.[38] The Canadian government, however, decrees that that is illegal,[39] though it is unclear how far their jurisdiction might extend.

See also[edit]

References[edit]

  1. ^ Weinberg, Ali (2013-02-19). "Penny pinching: Can Obama manage elimination of one-cent coin?". NBC News. Retrieved 2013-02-20. 
  2. ^ H.R.3761 – Price Rounding Act of 1989 (Introduced in House – IH)
  3. ^ – Legal Tender Modernization Act of 2001, HR 2528
  4. ^ Christian Zappone (2006-07-18). "Kill-the-penny bill introduced". CNN Money. Retrieved 2007-03-21. 
  5. ^ "Nickel for your thoughts? US bill seeks penny's end". Reuters. 2006-07-20. Retrieved 2006-07-20. 
  6. ^ [1]
  7. ^ a b "2013 Annual Report" (PDF). United States Mint. p. 11. Retrieved 10 March 2014. 
  8. ^ "United States Mint Moves to Limit Exportation & Melting of Coins". 2007-04-17. 
  9. ^ "May 2011 National Occupational Employment and Wage Estimates United States". U.S. Bureau of Labor Statistics. 2011-05-01. Retrieved 2012-04-09. 
  10. ^ Mallaby, Sebastian (2006-09-25). "The Penny Stops Here". The Washington Post. p. A21. Retrieved 2007-08-09. The median worker earns just over $36,000 a year, or about 0.5 cents per second, so futzing with pennies costs him $3.65 annually. 
  11. ^ Mankiw, Greg (2006-09-25). "How to Make $1 Billion". Greg Mankiw's Blog. Retrieved 2007-08-09. Multiply that last figure by the number of Americans & you find that getting rid of the penny would free up economic resources valued at about $1 billion a year. 
  12. ^ "The Penny's End Is Near". Consumer Affairs. 2006-07-19. Retrieved 2007-08-09. Whaples said that based on the average American wage, $17 an hour, every 2 seconds of an average American's day is worth 1 cent. "That's going to add up to about $300 million per year for the U.S. economy," Whaples said. 
  13. ^ Barrett, Maggie (July 18, 2006). "Professor's research supports eliminating penny". Wake Forest University. Retrieved 17 January 2015. 
  14. ^ Mankiw, Greg (2006-12-31). "Resolutions for Another New Year". Greg Mankiw's Blog. Retrieved 2009-12-28. 
  15. ^ Robert Whaples, "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, vol. 33, issue 1, pp. 139–146 (2007).
  16. ^ a b c http://data.bls.gov/cgi-bin/cpicalc.pl CPI Inflation Calculator
  17. ^ http://www.nytimes.com/roomfordebate/2012/04/04/bringing-dollars-and-cents-into-this-century/please-finally-end-the-penny
  18. ^ a b c http://www.westegg.com/inflation/ The Inflation Calculator
  19. ^ http://www.cbsnews.com/news/dog-fatally-poisoned-by-one-penny/
  20. ^ Managing Change: Is the Penny Worth Keeping? with Raymond Lombra, an economics professor at Pennsylvania State University, and Robert Whaples, a professor and chairman of the economics department at Wake Forest University
  21. ^ Weller, M. (March 30, 2012). "Americans For Common Cents: 66% of Americans Favor Keeping the Penny". Americans for Common Cents. Retrieved October 24, 2012. 
  22. ^ Navigant Consulting: Impact of Eliminating the Penny on the United States Mint's Costs and Profit in Fiscal year 2011 by Rodney J. Bosco and Kevin M. Davis
  23. ^ McGinty, Jo Craven (19 September 2014). "Would Consumers Lose Money if U.S. Dropped the Penny?". Wall Street Journal. Retrieved 27 October 2014. 
  24. ^ "Zinc supplier paying thousands to save penny". The Dallas Morning News. 2007-08-19. Retrieved 2010-02-08. 
  25. ^ http://www.preciousmetals.com/blog/2015/01/coin-experts-survey/
  26. ^ Goolsbee, Austan. New York Times, 2007-02-01. "Now That a Penny Isn’t Worth Much, It’s Time to Make It Worth 5 Cents". Accessed 2007-11-30.
  27. ^ http://www.gpo.gov/fdsys/pkg/PLAW-111publ302/pdf/PLAW-111publ302.pdf
  28. ^ "Budget: Penny pinch — Canada to phase out the copper coin". Canada.com. 29 March 2012. Retrieved 29 March 2012. 
  29. ^ "Canada's Last Penny: Final Cent Struck In Winnipeg Friday As Currency Killed". Canadian Press/Huffington Post Canada. 2012-05-04. Retrieved 2012-05-04. 
  30. ^ Schwartz, Daniel (Feb 1, 2013). "Obituary: Canadian penny, 1858–2013". CBC News. Retrieved 4 February 2013. 
  31. ^ Phasing Out the Penny, Royal Canadian Mint. Accessed 2014-04-03.
  32. ^ History of New Zealand Coinage, Reserve Bank of New Zealand. Accessed 2008-01-02.
  33. ^ [2], Banco de México. Accessed 2010-12-27.
  34. ^ CONGRESSIONAL RECORD—HOUSE March 19, 2002, gpo.gov, Page H959 (page 21 of the PDF).
  35. ^ "United States Mint Limits Exportation & Melting of Coins". Press Release and Public Statements. United States Mint. 2007-04-17. Retrieved 2007-08-28. 
  36. ^ The United States Mint Pressroom
  37. ^ http://www.coinflation.com/coins/silver_coin_calculator.html Hartford Advocate: News – Penny Ante Profits
  38. ^ http://www.dailyfinance.com/2012/05/11/should-you-melt-down-pennies-for-profit-not-u-s-pennies-but/
  39. ^ http://laws.justice.gc.ca/eng/acts/C-52/page-2.html#h-8

External links[edit]