I had a very interesting conversation with my wife yesterday. Most of the time we talk, the topic doesn’t involve money, or at least, not the more technical details of things like monetary supply and money related politics. Sondra just doesn’t have an interest in most of those subjects, and the last thing I would want to do is try to impose anything like that on her.
But yesterday, we started talking about an issue about which I was surprised she cared so deeply, and on which she had very strong opinions. Pennies. Yes, those small, copper-colored (and containing) coins that are nearly worthless in modern day society. (And which are sometimes used as a means of protesting an undesired bill.)
Specifically, we talked about getting rid of pennies, given the current state of our economy, and simply relying on other types of coins instead. (We also discussed the idea of eliminating nickels and dimes, as well, and simply using quarters (the smallest unit of money accepted most places anyway), although I don’t think that would work too well, as it raises even more problems than those for the pennies with fewer potential benefits.) We ended up spending more than half an hour discussing the issue, in some depth, which made my wonky heart flutter. So now, buckle up for a Sondra-inspired penny discussion.
Why Ban the Penny?
Why is getting rid of the penny even an option? Well, there are a few reasons it’s being considered. The first, and perhaps most damning, is that it costs more than a penny to make a penny. It’s sometimes tough to get an exact figure on such things, but Snopes puts the cost at 2.41 cents per penny in 2012. Which means, for every 2012 penny that entered the market, the cost was over twice as much. With all the discussion of the government wasting money, the last thing we need as a nation is the government wasting money to make more money.
Still, if that was the only reason, there might not be any discussion; there are some things the government is expected to do, regardless of the cost, and providing a medium of exchange is one of them. (Things like provide for national defense and provide an impartial justice system to handle disputes being some of the others, although that’s a story for another blog entry.) But pennies aren’t exactly a vital part of our monetary system; when was the last time you could get anything for a single penny (or less than a quarter, for that matter)? It’s not the first time a low level coin was eliminated in our country; the half-penny was retired in 1858, back when the penny had more purchasing power than a dime has now. It was the equivalent of eliminating the nickel nowadays (which some people are proposing, as well, as nickels are also costlier to make than they are worth); while it would require time to get used to the changes, it’s far from a horrible disaster to no longer use the penny.
There’s also the issue of time. We spend a good amount of every year handling money, even in these times of debit cards and online banking. Eliminating pennies means hours each year would be saved that would otherwise be spent receiving pennies as change, counting pennies, wrapping pennies in those penny roll papers, and getting more usable types of coins in exchange. While not something that eats up too much time for most of us, it does add up over the years.
Let’s Keep the Penny
Of course, if it were that simple, the penny would have been eliminated a while ago, possibly when it still cost less than a cent to make. There are still arguments in the penny’s favor, the most obvious one being that prices would need to be rounded to the nearest five cents in order to accommodate our new monetary system. Between the time and effort needed to change all our prices and the likely increased costs for most goods as a result (when stores need to ensure that all their sales end in a multiple of five cents, the easiest (and most profitable) way to do so would be to round all their prices up the nearest nickel), it will take a while before any of those time savings come to light. (Let’s not even talk about the numerous issues that arise when we look at how state sales taxes will be affected.)
There’s also the matter that some groups benefit from the low consideration most Americans have for pennies. Charities get plenty of pennies from people who’d never consider parting with dimes (to say nothing of quarters). Coinstar and similar operations benefit from people not sorting through their coins on their own time, a tendency that would decrease with only three major types of coins to go through. (Yes, I know there are half dollars and dollar coins on top of nickels, dimes, and quarters, but how often do you see those first two types around anywhere?) Any place with a wishing fountain or similar structure is likely to see a pretty hefty drop in coins thrown in should the minimal cost of such throwing suddenly increase five-fold.
Lastly, there’s the sentimental issue. Pennies have been around since the start of the country, have been our lowest unit of currency since 1858, and have had Lincoln on them for over a century (since 1909). Getting rid of pennies requires the country to part with something that is pretty well ingrained in our cultural history; suddenly sayings like ‘A penny saved is a penny earned’ would be much more nonsensical. (Although, let’s be honest, it’s not the most inspiring saying nowadays, given just how much a penny is actually worth.)
So, where do I stand on the penny issue? What position did I take when talking with Sondra? Well, while I argued against eliminating the nickel and dime (at least in the near future), I do think we can do without the penny. There’s simply not much that can be done with pennies, and given the increasing move to payment forms like checks, credit cards, and debit cards anyway, it doesn’t make much sense to continue making most forms of physical cash, particularly the smallest ones.
I’m not saying we should stop using pennies immediately; it does take time to adjust to this sort of change, and the last thing we want to do is to rush people into a new situation, currency wise. Still, I think a policy of retiring pennies over the next few years, encouraging them to be cashed in for larger types of currencies as stores shift their prices and banks start giving interest payments in denominations rounded to the nearest five cents, would help to enable a smooth transition by, say 2015. Of course, given the numerous bigger monetary policy fish there are for the government to fry, I doubt something like eliminating the penny will get on the agenda anytime soon.