A week or two ago, Canada did away with the penny, noting that it cost 1.6 cents to produce a “one cent piece” aka penny. Here at home, it apparently costs 2.4 cents to produce a penny.
Unless I missed something back in Economics classes, if it costs 2.4 cents to produce a penny, the term “penny” should not be used interchangeably with “one cent piece”. The US Treasury loses more than US$100 million per year on the production of pennies. You can’t really buy anything for a penny or even two – that penny gumball machine costs a quarter now. So why do we keep pennies around, nostalgia?
If we ditched the penny, there would have to be price adjustments. No more using the “99 cent” to make something seem less expensive ($4.99? What a bargain! Not even five dollars!). If all prices adjust upwards rather than down, and I don’t think that’s a given ($4.95, anyone?), we might experience some short-term inflation. Would all that rounding wipe out the $100 mm savings from nixing production? Even if it did, that would only be in year one, since we adjust once but would realize savings on an annual basis.
It seems entirely rational to me to get rid of the penny. And yet, I think back to when I studied in Italy and how often I’d receive a mint or a toothpick when there wasn’t a small enough Lira coin available. I was always amused at the idea of a nation that couldn’t produce the right amount of various currency denominations. True, the Lira wasn’t the most stable of currencies at that time, nor was it used as a global exchange standard. I’m willing to cut Italy some slack here, but I never thought of the US as a country that would need to handout chewing gum instead of change. Shouldn’t we be a little beyond that?
So, by all means, let’s get rid of the penny. But let’s think through the implications beforehand, set up a timetable, discuss pricing challenges etc. etc. We can put a man on the moon, surely we can put the penny out to pasture.
If you want to read more on this topic, check out John Fund’s piece in the National Review (http://www.nationalreview.com/articles/294956/penny-anti-john-fund) or this one from Wikipedia (http://en.wikipedia.org/wiki/Penny_debate_in_the_United_States)
Lauren Burnhill, @LaurenOPV