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. Several bills introduced in the U.S. Congress would have ceased production of pennies, but none has been approved. Such bills would leave the nickel, at five cents, as the lowest-value coin in the United States.

Legislation[edit]

In 1990, United States Representative Jim Kolbe [R-AZ] introduced the Price Rounding Act of 1989, H.R. 3761 to eliminate the penny in cash transactions, rounding to the nearest nickel.[1] In 2001, Kolbe introduced the Legal Tender Modernization Act of 2001, H.R. 5818,[2] and in 2006, he introduced the Currency Overhaul for an Industrious Nation (C.O.I.N.) Act, H.R. 5818.[3] While the bills received much popular support from the public, the bills were not made into law.[4] Nonetheless, there is public pressure on many Representatives to reintroduce these bills to Congress.[5]

In 2017, U.S. Senators John McCain [R-AZ] and Mike Enzi [R-WY] introduced S. 759, the Currency, Optimization, Innovation, and National Savings (C.O.I.N.S.) Act of 2017, that would stop minting of the penny for ten years and would study the question of whether production could cease thereafter.

Since March 29, 2017, S. 759 has been in the Banking, Housing, and Urban Affairs committee.[6]

Arguments for elimination[edit]

  • Production at a loss – As of 2016, it costs 2.41 cents to mint a penny.[7] This results in an annual loss of approximately $50 million. The price of the raw materials from which the penny is made exceed the face value, so there is a risk that coins will be illegally melted down for raw materials.[8]
  • Lost productivity and opportunity cost of use – With the median wage in the US being $18.12 per hour in 2017,[9] it takes less than 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 US is about $3.65 per person annually,[10] or about one billion dollars for all Americans.[11] Using a different calculation, economist Robert Whaples estimates a three hundred million dollar annual loss.[12] Additionally, Whaples argues that eliminating the penny would coax people into using one dollar coins. The Federal Reserve says that replacing one dollar bills with one dollar coins would save an additional five hundred million dollars per year.[13]
  • Limited utility – Pennies are not accepted by any vending machines or by most toll booths, and are generally not accepted in bulk. Economist Greg Mankiw says that "The purpose of the monetary system is to facilitate exchange, but...the penny no longer serves that purpose."[14] Pennies often drop out of circulation (e.g. they are stored in jars in a person's home) and due to their low value are sometimes even discarded by consumers. This contributes to the United States Mint needing to produce more pennies than all other coins combined.
  • Prices would not be higher – Research by Robert Whaples, an economics professor at Wake Forest University, using data on nearly two hundred thousand transactions from a multi-state convenience store chain shows that rounding would have virtually no effect. Consumers would gain a tiny amount – about ​140¢ per transaction.[15]
  • Elimination would not hurt the poor – Given that rounding (based on cash transaction totals being rounded up and down to the nearest multiple of five cents) is neutral at the transaction level, and that cash transactions are faster without having to deal with extremely low-value coins, people who disproportionately deal in cash transactions would be helped more by elimination of the penny. [16] To gain consumer favor for reducing the use of the penny it could be legislated (either on a state or federal level) that all cash transactions totals over a nominal amount (say 25 cents) would need to be rounded down to the nearest multiple of five cents. Rounding down cash transaction totals is a win for the merchant too as it encourages cash sales and thereby avoids the electronic payment fee (typically in the order of two percent of the balance) as often.[17]
  • Recent popular support – According to a national survey conducted in January 2017 by the polling team of Hart Research Associates and Public Opinion Strategies on behalf of the Dollar Coin Alliance, there is broad support for eliminating the penny. The Hart/POS survey found that 77 percent of voters support suspending production of the penny. When told of the savings made by suspending the penny, support jumped to 84 percent.[18]
  • 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 inflation, one nickel in 2018 was worth approximately what a penny was worth in 1974.[19] When the United States discontinued the half-cent coin in 1857, it had a 2018-equivalent buying power of about 14 cents. [20] After 1857, the new smallest coin was the one-cent, which had a 2018-equivalent buying power of 27 cents.[20] The nickel fell below that value in 1973; the dime (at ten cents) fell below that value in 1981; the quarter (at twenty-five cents) fell below that value in 2012.[21]
  • Zinc toxicity – Zinc can cause anemia or gastric ulceration in babies that inadvertently ingest pennies made after 1982. A single penny can kill a pet.[22]
  • Environmental hazard – The mining of zinc and copper causes toxic pollution and is especially undesirable when considering the valuable metals are being used to produce a useless coin.
  • Effort to transport and count – Approximately sixty percent of coins minted are pennies and all these pennies (generally over five billion annually) must be transported by secure and therefore expensive means from the Mint to banks and then onto stores. Store employees spend valuable time counting low value pennies at the end of a work shift. Banks often return loose coins on an armored truck to be sorted and wrapped so as to be ready to be given out to a customer. This process costs on the order of ten cents per roll (a hefty twenty percent charge on a roll of fifty pennies).

Arguments for preservation[edit]

  • Consumers and the economy – Research commissioned by the zinc lobby and its front group Americans for Common Cents concludes that were the penny to be eliminated, consumers might be hit with a "rounding tax". The paper 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.[23]
  • Historical popular support – A poll conducted in June 2006 by USA Today/Gallup, found that fifty-five percent of the American public considered the penny to be a useful coin, while forty-three percent of those surveyed were in favor of abolishing the coin.[24] Since this poll was taken more people are in favor of eliminating the penny due to the penny's reduced value.
  • Increased cost – Commissioned by Jarden Zinc, which supplies zinc "penny blanks" to the Mint, a report conducted by Navigant Consulting found that the government would lose money without the penny. According to Americans for Common Cents' website, "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 (unlikely to occur) 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."[25][26]
  • Rounding hurts the poor – Millions of transactions are conducted each day in the US economy, and with twenty-six percent of Americans either not having savings or checking accounts or relying on payday lending services, there are many cash transactions taking place involving American citizens each day. Federal Reserve studies have shown that people with relatively low incomes use cash more frequently than individuals with higher incomes. Since only cash transactions will be subject to rounding, a 2001 study indicates that any move to eliminate the penny may disproportionately hurt "unbanked" Americans who have no other option and lack the means to make non-cash transactions. The study, authored by Raymond Lombra, concluded that eliminating the penny would impose a "rounding tax" of at least six hundred million dollars per year on American consumers.[27] Canada's elimination of the penny, however, rounds cash transactions both up and down.[28]

Nickels[edit]

As of 2017, nickels cost 5.94 cents to produce,[7] providing an argument for elimination similar to the penny's production at a loss. The current face value of a nickel is also well below that which the lowest-denomination coin (the penny) held at the time of the half-cent's elimination in 1857.[19] Unlike the penny, the nickel is 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; however, if the composition of the nickel were to be changed from the present 75/25 copper-nickel alloy to stainless steel, which has been successfully used in many countries, the nickel would cost far less than five cents to produce. The US Mint has studied other alternative metal mixtures and an 80/20 copper-nickel alloy would lower the cost of the nickel (albeit it still would likely be minted at a loss) while desirably allowing coin sorting machines to function without modification.

Lobbying[edit]

  • The sole provider of zinc "penny blanks", Jarden Zinc Products of Greeneville, Tennessee, has hired lobbyists to make the case for preserving the penny and their sales.[29]
  • The coin lobby Citizens to Retire the Penny support the elimination of the United States one-cent coin.[30]
  • In a 2015 survey regarding US currency, fifty-six percent of coin and numismatic experts declared that they on average believe that the penny will be phased out by around the year 2026.[31]

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 an inflation of nearly six billion dollars.[32]

Congress passed the Coin Modernization, Oversight, and Continuity Act of 2010, which requires the Treasury to report on possible new metallic coin materials.[33]

Precedents in other countries[edit]

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

  • Australia discontinued one-cent coins in 1990 and two-cent coins of the Australian dollar in 1989 due to the metal exceeding face value and were withdrawn from circulation in 1992.[34]
  • 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 US cents prior to 2000 and so it circulates at par in small quantities in the United States (and vice versa). However, on March 29, 2012, the Canadian government announced that it would eliminate the penny from its coinage system.[35] The final Canadian penny was minted on May 4, 2012[36] and active distribution of the coin by the mint was discontinued on February 4, 2013.[37] Since that 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.[38]
  • Mexico's new peso transition in 1993 made the five-centavo coin the smallest denomination of the new currency. In 2009, new coins were minted only for the ten, twenty and fifty centavo denominations.[39]
  • New Zealand eliminated one- and two-cent coins of the New Zealand dollar in April 1990, and the five-cent coin in October 2006.[40]
  • At US military bases overseas, AAFES rounds up or down to the nearest one-twentieth denomination of currency.[41]

However, many nations still use coins of similar or smaller value to the United States 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 1-won and five-won coins, but ten-won coins (worth about US$0.01) are still minted with changing composition and used only in supermarkets.
  • Some countries in the Eurozone use one and two-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. However, Finland, Ireland and the Netherlands have abandoned the use of one and two-cents altogether. Finland only ever produced a small number of one-cent coins, mostly for collecting and legal reasons.
  • Panama and Ecuador, which use the United States dollar as their currency, mint their own coins including one-centavo pieces identical in size to the penny. However, prices and wages are generally lower in those countries compared to the United States.

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.[42] The reason given was that the price of copper was rising to the point where these coins could be melted for their metal content.[43] 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.[44] According to American law, US citizens are allowed to melt foreign coinage (e.g., Canadian pennies) for personal or commercial use.[45]

See also[edit]

References[edit]

  1. ^ H.R.3761 – Price Rounding Act of 1989 (Introduced in House – IH)
  2. ^ Legal Tender Modernization Act of 2001, HR 2528
  3. ^ Christian Zappone (2006-07-18). "Kill-the-penny bill introduced". CNN Money. Retrieved 2007-03-21.
  4. ^ "Nickel for your thoughts? US bill seeks penny's end". Reuters. 2006-07-20. Retrieved 2006-07-20.
  5. ^ COINS Act Reforms Wasteful $1 Presidential Coin Program
  6. ^ https://www.congress.gov/bill/115th-congress/senate-bill/759
  7. ^ a b "2017 Annual Report" (PDF). United States Mint. p. 10. Retrieved May 29, 2018.
  8. ^ "United States Mint Moves to Limit Exportation & Melting of Coins". 2007-04-17.
  9. ^ "May 2017 National Occupational Employment and Wage Estimates United States". U.S. Bureau of Labor Statistics. 2018-03-30. Retrieved 2018-05-29.
  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 two 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. Archived from the original on December 1, 2006. Retrieved January 17, 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. ^ http://www.retirethepenny.org/myths.html
  17. ^ Dubuque, From Joe Koch Pheasant Lane,. "Letter: For change, do away with the penny". TelegraphHerald.com. Retrieved 2018-09-04.
  18. ^ "Press release". 2017-03-29. Retrieved 2018-08-31.
  19. ^ a b http://data.bls.gov/cgi-bin/cpicalc.pl CPI Inflation Calculator
  20. ^ a b https://measuringworth.com/index.php
  21. ^ https://www.bls.gov/cpi/research-series/home.htm>
  22. ^ http://www.cbsnews.com/news/dog-fatally-poisoned-by-one-penny/
  23. ^ 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
  24. ^ Carrol, Joseph (July 17, 2006). "Americans For Common Cents: 66% of Americans Favor Keeping the Penny". Gallup. Retrieved June 3, 2016.
  25. ^ "Penny Profitability: What Does it Really Cost to Make a Penny?". Americans for Common Cents. Retrieved November 13, 2015.
  26. ^ Navigant Consulting: Impact of Eliminating the Penny on the United States Mint's Costs and Profit in the Fiscal year 2011 by Rodney J. Bosco and Kevin M. Davis
  27. ^ Raymond Lombra (Fall 2001). "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis" (PDF). Eastern Economic Journal. Retrieved December 27, 2015.
  28. ^ http://www.mint.ca/store/mint/about-the-mint/phasing-out-the-penny-6900002
  29. ^ "Zinc supplier paying thousands to save penny". The Dallas Morning News. 2007-08-19. Retrieved 2010-02-08.
  30. ^ http://www.retirethepenny.org/
  31. ^ "Archived copy". Archived from the original on January 30, 2015. Retrieved February 3, 2015.
  32. ^ 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". Retrieved 2007-11-30.
  33. ^ http://www.gpo.gov/fdsys/pkg/PLAW-111publ302/pdf/PLAW-111publ302.pdf
  34. ^ Frequently Asked Questions, Royal Australian Mint. Retrieved 2018-11-29.
  35. ^ Smith, Teresa (March 29, 2012). "Budget: Penny pinch — Canada to phase out the copper coin". Postmedia News. Retrieved March 29, 2012.
  36. ^ "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.
  37. ^ Schwartz, Daniel (February 1, 2013). "Obituary: Canadian penny, 1858–2013". CBC News. Retrieved February 4, 2013.
  38. ^ Phasing Out the Penny, Royal Canadian Mint. Retrieved 2014-04-03.
  39. ^ Anuncio de cambios al actual cono monetario, Banco de México. Retrieved 2010-12-27.
  40. ^ History of New Zealand Coinage Archived January 23, 2009, at the Wayback Machine., Reserve Bank of New Zealand. Retrieved 2008-01-02.
  41. ^ ccessional record – House of representatives March 19, 2002, gpo.gov, page H959 (page 21 of the PDF).
  42. ^ "United States Mint Limits Exportation & Melting of Coins". Press Release and Public Statements. United States Mint. 2007-04-17. Retrieved 2007-08-28.
  43. ^ The United States Mint Pressroom: United States Mint Moves to Limit Exportation & Melting of Coins
  44. ^ http://www.coinflation.com/coins/silver_coin_calculator.html Hartford Advocate: News – Penny Ante Profits
  45. ^ https://www.aol.com/article/2012/05/11/should-you-melt-down-pennies-for-profit-not-u-s-pennies-but/ Should You Melt Down Pennies for Profit? Not U.S. Pennies, But ...

External links[edit]