Penny debate in the United States

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 February 15, 2013, President Barack Obama stated his willingness to eliminate the penny.^[1]

Legislation

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 2528,^[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

• 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 ¹⁄₄₀¢ 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]

Arguments for preservation

• 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.^[19]

• 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.^[20] 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, 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.^[21]

• 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.^[22]

• 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

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

• The sole provider of zinc "penny blanks", Jarden Zinc Products, has hired lobbyists to make the case for preserving the penny and their sales.^[23]

• The coin lobby Citizens to Retire the Penny
• 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).^[24]

Other options

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.^[25]

Congress passed the Coin Modernization, Oversight, and Continuity Act of 2010 requiring Treasury reports on possible new metallic coin materials.^[26]

Precedents in other countries

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

• Canada has 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 will eliminate the penny from the coinage system.^[27] The final Canadian penny was minted on 4 May 2012^[28] and active distribution of the coin by the mint was discontinued on February 4, 2013.^[29] 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.^[30] Though the Canadian government is expected to save $11 million a year from eliminating the penny, it will take an estimated $7.3 million to redeem the roughly 6 billion pennies currently in circulation, leaving only a savings of $3.7 million in the first year post-elimination.^[31]
• The Philippines under US territorial administration removed their half-centavo coins from circulation in 1904 because of public rejection of such a small denomination, though introduced only the year before. The Philippine half centavo continued as a proof-only coin until 1908, and a small run of aluminum half-centavo coins was privately struck in 1913 for the Culion Leper colony, but not circulated. In contrast to that however, the Philippine hundredth of a peso denomination (one centimo) continues to exist as a circulated coin as of 2011 despite a record low value of $0.00024.
• Sweden removed the 1 and 2 öre coins from circulation in 1972, by 1991 had eliminated the 5, 10, and 25 öre coins, and in 2010 also eliminated the 50 öre coin. Similarly, the Norwegian krone has also eliminated its 5, 10, 25 and 50 øre coins.
• In Denmark the Danish krone has had the 25 øre coin removed from circulation. From 1 October 2008, one could no longer pay with it in stores, and from the 1 October 2011, one could no longer exchange it.^[32] Neither in regular banks nor the national bank (Nationalbanken).
• The decimal British half penny (£0.005) was first issued in 1971. Being worth 1.2 pre-decimal pence, it enabled the prices of some low-value items to be more accurately translated to the new decimal currency. Inflation over the ensuing 13 years led to the coin being withdrawn from circulation in December 1984.^[33]
• New Zealand eliminated one- and two-cent coins of the New Zealand dollar in April 1990, and the five-cent coin in October 2006.^[34] Before decimalization on 10 July 1967, there were two coins smaller than the decimal cent that were eliminated during the changeover – the halfpenny (⁵⁄₁₂ cent), and the penny (¹⁰⁄₁₂ cent)
• Mexico's New Peso transition in 1993 made the five-cent coin the smallest denomination of the new currency (the name was reverted to Mexican peso in 1996). In 2009, new coins were minted only for the ten, twenty and fifty cent denominations.^[35]
• Australia eliminated the one-cent and two-cent coins of their dollar in 1992.^[36]
• The Hong Kong government ceased producing the Hong Kong five-cent coin in 1980 and the Hong Kong one-cent note in 1995.^[37]
• Israel eliminated the one agora coin in April 1991^[38] and the five-agorot coin in January 2008.^[39]
• The Netherlands eliminated the one cent of the guilder in 1980 and ceased issuing the one and two cents of Dutch euro coins in 2006. In Finland, the one and two cent of Finnish euro coins are only being minted for collectors and are not in general usage.
• On 1 March 2008, Hungary eliminated the one and two forint coins and rounded everything to the nearest five forint.^[40]
• Since 1978, India has in phases eliminated out of circulation 1 paisa (¹⁄₁₀₀ of a rupee), 2 paise, 3 paise, 5 paise, 10 paise, 20 paise, and 25 paise coins.
• Papua New Guinea eliminated their two smallest denominations, the copper one and two Toea coins, with both coins ceasing to be legal tender in April 2007.^[41]
• At U.S. Military bases overseas, AAFES round up/down to the nearest 5 cent denomination.^[42]
• Singapore no longer issues one-cent coins since April 2002.^[43]

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:

• Russia still issues five-, ten-, and fifty-kopek coins, despite their value being approximately equivalent to $0.002, $0.003, and $0.02, respectively, in U.S. dollars. The issue of one-kopek coins was stopped in 2010.^[44]
• Neighboring Ukraine still issues and uses all kopek coins, even the 1 kopek dating from when its hryvnia was worth more. One kopeck is equivalent to $0.00125 (one-eighth of a U.S. cent).
• 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 East Caribbean Dollar Board, the Bahamas, Barbados, Bermuda, Cayman Islands, and Belize all issue one-cent coins.
• The Solomon Islands, South Africa (1c and 2c were stopped in 2002^[45][46]) and Namibia all issue five cent coins valued approximately at or below US $0.01.
• The Eurozone (except for Finland and the Netherlands) 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. In Finland and the Netherlands, all prices are rounded to the nearest five cents.^[47] However, in 2013 the European Commission has proposed discontinuation of the 1 and 2 cent coins because they cost more to produce and distribute than their face value, while the consumers do not bother to spend them.^[48]
• Japan continues to mint the 1 yen coin which is in regular usage at convenience stores.
• Peru's Nuevo Sol still maintains production of 1-cent and 5-cent coins. The 1-cent coin is worth US$0.0035. Much like the American coin, they are only occasionally given out at supermarkets as change and are never used in public. Most supermarkets offer the option of donating the cents instead of receiving the change. This saves time and most people opt for a donation to charity.
• Croatia still issues and uses 5 lipa (0.05 kuna) coins, worth approximately $0.01 as of January 2013. The 1 and 2 lipa coins haven't been minted since 2009, but are still occasionally encountered.
• East Timor still issues a 1 centavo coin, whose value is equivalent to the U.S. cent due to the East Timor Dollar pegged at par to the United States dollar.

Other countries listed below also use 1 cent coins identical in size and composition to an American penny, nearly all are either pegged to the U.S. Dollar or circulate alongside the pegged currency. Small amounts of these coins also circulate at par in the United States.

• Panama still issues a 1-centésimo coin, which is identical in size, composition and value to the U.S. cent, and circulates alongside it. It should be noted that all of Panama's currency is in coins, as they print no paper currency.^[49] (Though US bills are considered legal tender).
• Ecuador still issues a 1-centavo coin, and like Panama, the coin is mostly identical in composition to a U.S. cent, is equivalent in value, and also circulates alongside it.

Laws regarding melting and export

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.^[50] The reason given was that the price of copper was rising to the point where these coins could be melted for their metal content.^[51] 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.^[52] 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.^[53] The Canadian government, however, decrees that that is illegal,^[54] though it is unclear how far their jurisdiction might extend.

See also

• Gresham's law
• Metal theft
• Take a penny, leave a penny

References

External links

Wikimedia Commons has media related to United States cents.

• Ban The Penny (Forbes magazine)
• Should the penny go? (CNN)
• Canadian survey results on removal of the penny
• 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, on shortage of pennies, FindArticles, August 16, 1999
• Citizens for Retiring the Penny
• PennyFreeBiz .. Merchant's grass roots effort for retiring the Penny.