Penny debate in the United States

1959 US cent, first year mint with Lincoln Memorial design on reverse.

A debate exists within the United States government, and American society at large, over whether the one-cent coin, commonly known as 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.

Contents

Legislation

In 2002, United States Representative Jim Kolbe (R-AZ) introduced the Legal Tender Modernization Act and in 2006 he introduced the Currency Overhaul for an Industrious Nation (COIN) Act.[1] Both bills failed to advance in the house and died when Congress adjourned.[2]

Arguments for elimination

  • Production at a loss — As of March 2008, it costs about 1.7 cents to mint a penny.[3] As of 2007, even the price of the raw materials it is made of exceeds the face value, so there is a risk that coins are illegally melted down for raw materials.[4]
  • Lost productivity and opportunity cost of use — With the average wage in the U.S. being about $17 per hour in 2006, 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,[5] about $1 billion for all America.[6] Using a different calculation, economist Robert Whaples estimates a $300 million annual loss.[7]
  • Limited utility — Pennies are not accepted by all vending machines or many toll booths, and pennies are generally not accepted in bulk; however, Illinois does accept pennies in its toll booths.[8] In addition, people often do not use cents to pay at all; they may simply use larger denominations and get pennies in return.[citation needed] Pennies 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." [9]
  • 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 38/1520th (1/40th) of a cent per transaction.[10]
  • Historical precedents — There has never been a coin in circulation in the U.S. worth as little as the penny is worth today. Due to monetary inflation, as of 2007, a nickel is worth approximately what a penny was worth in 1972.[11] When the United States discontinued the half-cent coin in 1857, it had a 2008-equivalent buying power of 11 cents.[12] After 1857, the new smallest coin was the cent, which had a 2008-equivalent buying power of 26 cents. The nickel fell below that value in 1974; the dime (at 10 cents) fell below that value in 1980;[11] the quarter (at 25 cents) fell below that value in 2007.[12]
  • Hazards — The reduced-cost clad zinc penny, which has been produced since mid-1982, holds additional dangers when swallowed by children and others, unlike all previous U.S. coins. If the copper plating is breached, the penny quickly corrodes into a sharp-edged object, which is more likely to lodge in the digestive tract. Injury is more likely and furthermore, zinc and copper digested from the lodged pennies may be toxic. An 11 lb (5-kilogram) dog was fatally poisoned by swallowing two pennies.[13]

Arguments for preservation

  • Charity — Some organizations raise donations in change jars, predominantly in pennies.[14]
  • Historical sentiment — The cent was one of the first coins authorized to be minted by the American government and the first to be put into production.
  • Presidential history — Many admire Lincoln as a president and in addition to the 5-dollar bill, the penny bestows an honor on Lincoln. This is especially pronounced in Illinois, the Land of Lincoln.[15]
  • Deflationary effects — Some have argued that because inflation raises production costs of the penny to exceed its value, this imposes limits on the amount of inflation that can be caused by central banks.[16][dubious ]

Other options

The 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.[17]

On February 28, 2008, Rep. Zack Space (D-OH) introduced the H.R. 5512, the Coin Modernization and Taxpayer Savings Act of 2008. If enacted to law, the act would result in the penny being made primarily of steel and treated to have a copper color within 270 days of enactment unless the Secretary of the Treasury can come up with a new element for coin composition that, when added to zinc and copper will lower the price to manufacture to under one cent. According to the act, "Given the current cost to make a penny and volume of pennies minted, simply reducing penny production costs to face value, the United States will save more than $500,000,000 in the next ten years alone". After committee hearings, the House passed the bill on May 8, 2008 by voice vote. However, the bill died in committee in the United States Senate.[18][19]

Precedents in other countries

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

  • Sweden removed the one and two öre coins from circulation in 1972, by 1991 had eliminated the five, ten, and 25 öre coins and in 2010 also eliminated the 50 öre coin. Similarly, the Norwegian krone and Danish krone, have both eliminated all coins worth less than 50 øre.
  • 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.[20]
  • New Zealand eliminated the one and two cent coins of the New Zealand dollar in 1990 and the five cent coin in 2006.[21]
  • Mexico's New Peso transition in 1993 made the five cents coin the smallest denomination of the new currency (the name was reverted to Mexican Peso in 1996). In 2009 new coins were minted for ten and twenty cents.[22]
  • Australia eliminated the one and two cent coins of their dollar in 1992.[23]
  • Hong Kong government ceased to produce Hong Kong five-cent coin since 1980 and they were quickly recalled from circulation.[24]
  • Bank Negara Malaysia implemented a rounding mechanism on 1 April, 2008 in order to round total bills to the nearest 0.05 ringgit, which made the 1 sen (0.01 ringgit) coin irrelevant to normal circulation.[25]
  • Israel eliminated the one agora coin in April 1991[26] and the five agorot coin in January 2008.[27]
  • 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 March 1, 2008, Hungary eliminated the one and two forint coins and rounded everything to the nearest five forint.[28]
  • In 2005, Brazil stopped issuing one cent Brazilian Real coins.[29]
  • In 2001, Argentina stopped issuing one cent Argentine Peso coins.[citation needed]
  • Since 1978, India had in phases eliminated out of circulation 1 paisa (1/100th 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.[30]
  • At U.S. Military bases overseas, AAFES round up/down to nearest 5 cent denomination.[31]

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.[32]
  • 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).
  • Republic of Korea stopped minting of 1 won and 5 won coins, but 10 won coins are still minted with changing composition.
  • 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[33][34]) 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, but as posted prices generally include taxes it is possible for vendors to round prices to the nearest five cents and effectively eliminate the need for smaller-value coins. As a result, one- and two-cent coins see relatively low usage.[citation needed] In Finland and the Netherlands, all prices are rounded to the nearest five cents.[35]
  • Japan continues to mint the 1 yen coin, and it is in regular usage.
  • Canada continues to mint a one-cent coin with a nearly identical composition (except with steel as the interior metal instead of zinc), size, and shape as its American counterpart; it circulates at par in small quantities in the United States. Like the American penny, it has seen a parallel movement to eliminate the coin from circulation.[36]
  • Peru's Nuevo Sol still maintains production of 1 and 5 cent coins. The 1 cent coin is worth a mere 0.0035 cents USD. 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.
  • Panama still issues a 1 Centisimo coin, which is identical in size, composition and value to the U.S. cent, and circulates alongside it.
  • Ecuador still issues a 1 Centavo coin, and like Panama, the coin is mostly identical in composition to a U.S. cent, 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.[37] The reason given was that the price of copper was rising to the point where these coins could be melted for their metal content.[38] 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.[39]

References

  1. ^ Christian Zappone (2006-07-18). "Kill-the-penny bill introduced". CNN Money. http://money.cnn.com/2006/07/18/news/penny/index.htm. Retrieved 2007-03-21. 
  2. ^ "Nickel for your thoughts? US bill seeks penny's end". Reuters. 2006-07-20. http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-07-20T120021Z_01_N17321144_RTRIDST_0_LIFE-PENNY-GENERAL-FEATURE.XML. Retrieved 2006-07-20. 
  3. ^ Penny Problem: Not Worth Metal It's Made Of - March 16, 2008
  4. ^ "United States Mint Moves to Limit Exportation & Melting of Coins". 2007-04-17. http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&ID=771. 
  5. ^ Mallaby, Sebastian (2006-09-25). "The Penny Stops Here". The Washington Post. p. A21. http://www.washingtonpost.com/wp-dyn/content/article/2006/09/24/AR2006092400946.html. 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." 
  6. ^ Mankiw, Greg (2006-09-25). "How to Make $1 Billion". Greg Mankiw's Blog. http://gregmankiw.blogspot.com/2006/09/how-to-make-1-billion.html. 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." 
  7. ^ "The Penny's End Is Near". Consumer Affairs. 2006-07-19. http://www.consumeraffairs.com/news04/2006/07/penny_sense.html. 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." 
  8. ^ http://www.illinoistollway.com/portal/page?_pageid=133,1483282&_dad=portal&_schema=PORTAL
  9. ^ Mankiw, Greg (2006-12-31). "Resolutions for Another New Year". Greg Mankiw's Blog. http://gregmankiw.blogspot.com/2006/12/resolutions-for-another-new-year.html. Retrieved 2009-12-28. 
  10. ^ "Topic Two: It's time to pitch the penny". The News & Observer. 2006-05-14. http://www.newsobserver.com/164/story/438851.html. Retrieved 2007-03-21. [dead link]
  11. ^ a b http://data.bls.gov/cgi-bin/cpicalc.pl CPI Inflation Calculator
  12. ^ a b http://www.westegg.com/inflation/ The Inflation Calculator
  13. ^ Gastric Retention of Zinc-based Pennies: Radiographic Appearance and Hazards - O'Hara et al. 213 (1): 113 - Radiology
  14. ^ Haddock, Vicki (2006-05-21). "Pretty penny is in a pickle / It costs 1.23 cents to make -- a dime costs less than a nickel". The San Francisco Chronicle. http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/05/21/ING0CIU65I1.DTL. 
  15. ^ "Do pennies still make sense?". The Washington Times. http://www.washingtontimes.com/news/2009/feb/13/do-pennies-still-make-sense/. Retrieved 2010-02-08. 
  16. ^ Howden, David (January 4, 2011). "Canada's Penny: The Last Defender Against Inflation". Ludwig von Mises Institute. http://www.mises.ca/posts/articles/canada%e2%80%99s-penny-the-last-defender-from-inflation/?replytocom=693. Retrieved 17 April 2011. 
  17. ^ 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.
  18. ^ "Thomas Library of Congress. Search by Bill Number - Coin Modernization and Taxpayer Savings Act of 2008". Accessed 2008-05-08.
  19. ^ H.R. 5512--110th Congress (2008): Coin Modernization and Taxpayer Savings Act of 2008, GovTrack.us. Accessed 2008-05-14.
  20. ^ "Halfpenny coin to meet its maker". BBC Online. February 1, 1984. http://news.bbc.co.uk/onthisday/hi/dates/stories/february/1/newsid_2828000/2828819.stm. Retrieved August 17, 2010. 
  21. ^ History of New Zealand Coinage, Reserve Bank of New Zealand. Accessed 2008-01-02.
  22. ^ [1], Banco de México. Accessed 2010-12-27.
  23. ^ Royal Australian Mint FAQ. Accessed 2008-01-02. Archived December 29, 2007 at the Wayback Machine
  24. ^ Ma Tak Wo 2004, Illustrated Catalogue of Hong Kong Currency, Ma Tak Wo Numismatic Co., LTD Kowloon Hong Kong. ISBN 962-85939-3-5
  25. ^ "BNM Rounding Mechanism". Bank Negara Malaysia. http://www.bnm.gov.my/index.php?ch=209&pg=657&ac=568. Retrieved 2008-04-08. 
  26. ^ http://www.bankisrael.gov.il/catal/eng/bill_all_eng.htm?series_num=25&pg_name=c035
  27. ^ http://www.bankisrael.gov.il/catal/eng/bill_all_eng.htm?series_num=25&pg_name=c036
  28. ^ National Bank of Hungary - Forint.hu
  29. ^ http://www.bcb.gov.br/?COINWITHDRAWNM
  30. ^ "One Toea Coin". Bank of Papua New Guinea. http://www.bankpng.gov.pg/index.php?option=com_content&task=view&id=59&Itemid=116. Retrieved 2010-02-08. 
  31. ^ CONGRESSIONAL RECORD—HOUSE March 19, 2002, gpo.gov, Page H959 (page 21 of the PDF).
  32. ^ Мир новостей: Почему похоронили копейку
  33. ^ http://www.samint.co.za/index.php?option=com_content&view=article&id=72&Itemid=60
  34. ^ http://www.samint.co.za/index.php?option=com_content&view=article&id=71&Itemid=59
  35. ^ "Save the penny or leave the penny?". CBC News. 10 October 2007. http://www.cbc.ca/news/background/economy/penny.html. 
  36. ^ "Canada Senate calls for one-cent coin to be scrapped". BBC News. 2010-12-15. http://www.bbc.co.uk/news/world-us-canada-11996970. 
  37. ^ "United States Mint Limits Exportation & Melting of Coins". Press Release and Public Statements. United States Mint. 2007-04-17. http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&ID=771. Retrieved 2007-08-28. 
  38. ^ The United States Mint Pressroom
  39. ^ http://www.coinflation.com/coins/silver_coin_calculator.html Hartford Advocate: News - Penny Ante Profits

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