Can we Get Along Without the Penny? This Chart May Help you Decide
Can we get along without the U.S. penny? Reportedly, a majority of Americans think we cannot. We’re just used to it. After all, the penny has been around in one form or another ever since George Washington signed An Act to Provide for a Copper Coinage in 1792.
What we have not always had is a coin as small in value as the current U.S. cent. In fact, we never have had a coin worth so little. Take a guess at how much a penny was worth, in today’s money, in the year you were born. Then check your answer against the following chart, which shows just how much that little sliver of copper and zinc has shrunk in value over time:
Look at it this way:
- If we got rid of the penny, our smallest coin would be the nickel. That would take us back to where we were in 1973.
- If we got rid of the penny and the nickel, our smallest coin would be the dime. That would take us back to 1947.
- If we got rid of the penny, the nickel, and the dime, our smallest coin would be the quarter. That would take us back approximately to where we were from 1857, when the last half-penny was minted, up to the First World War.
Back when the penny was worth so much, was there a public outcry demanding smaller coins? Not really. In the depths of the Depression, when the value of the penny peaked at about 15 cents in today’s money, the Treasury actually proposed issuing half-cent and 1-mill coins. The idea was quickly shot down, and the coins were never minted.
Today, who wants to keep the penny, and why? The pro-penny group Americans for Common Cents is reportedly funded by the zinc lobby. That stands to reason, since the penny has been 95 percent zinc since 1983. Coinstar, Inc., is another avid backer of the penny. They make the automatic coin counting machines you sometimes see in supermarkets. The two sometimes have a hard time presenting a common front. Americans for Common Cents claims that 66 percent of Americans favor keeping the penny. However, Coinstar’s polling shows that 31 percent of those polled want to keep the penny only if it can be made of something cheaper than zinc, which now pushes the cost per coin well over one cent. According to their numbers, only a minority want to leave the penny as it is.
Industry lobbying aside, it seems that people’s biggest fear is that rounding of prices after elimination of the penny would lead to inflation. For three reasons, that is unlikely.
First, the United States, like Canada and other countries that have eliminated small-denomination coins, would undoubtedly issue rules to regulate rounding. Canadian rules require that cash transactions be rounded down for amounts ending in $.01 and $.02, and up for amounts ending in $.03 and $.04. The rounding would occur at the cash register. Nothing would prevent merchants from posting prices in one-cent increments, and marketing considerations would discourage the rounding up of posted prices. Retailers would probably continue to set prices at “price points” like $2.99, which consumers are thought to perceive as much cheaper than an even $3. In much the same way, even though there are no one-mill coins, U.S. gas stations post prices like $3.859 in order to get an edge over any competitor who would be foolish enough to price at $3.86.
To understand how rounding would work, suppose you go into a convenience store and buy a can of cat food for $1.59, a dozen eggs for $2.59, and a soda for $.99. Your total bill comes to $5.17. If you pay cash, that would be rounded to $5.15, saving you two cents.
Second, keep in mind that rounding applies only to cash transactions. If you pay by check, credit card, or debit card, you would pay $5.17 for your cat food, eggs, and soda, the same as now. In the United States today, cash payments account for only about 0.2 percent of all transactions. Even if we leave out the kind of wire transfers used to settle large financial transactions, the share of cash still is only about 2.4 percent. If every merchant in the land cheated on the rounding rules for cash transactions, it would not have a measurable impact on inflation.
Third, as any economist will tell you, the rate of inflation has nothing at all to do with the size of the coins a country has. Even if rounding to the nearest nickel produced a transitional impact on prices, it would be confined to a very short period. Over any significant time horizon, the rate of inflation depends on macroeconomic factors such as fiscal and monetary policy, productivity growth, and exchange rates, none of which would be at all affected by a change in the coinage.
Suppose the worst case—everyone cheats on the rounding rules and the average retail price of goods and services jumps by an extra 1 percent in the month the penny goes out of circulation. So what? If all the macroeconomic factors were to remain the same, inflation over the next few months would be 1 percent less than it otherwise would have been. By the time a year had passed, the overall price level would be no higher or lower with or without the penny.
Let’s not just theorize, though. Let’s watch what happens next door in Canada, which stopped putting new pennies into circulation this month. Give it a year. If there is a big spike in Canadian inflation that is traceable to the end of the maple-leaf penny, then we can keep our Lincoln cent. If getting rid of the penny fails to turn Canada into Zimbabwe with polar bears, then we can follow their example.
28 Responses to “Can we Get Along Without the Penny? This Chart May Help you Decide”
We can retire coinage without affecting the use of metals. Just mint new coins at bigger denominations using the same metals.
Why not retire a bunch of denominations, and mint coins instead of paper money for the $5 and $20? Retire everything but the nickel, quarter, and dollar. Create new coinage for the $5 and $20. The $50 is then the smallest note. Each coin is 4x or 5x the next smaller one.
> cash payments account for only about 0.2 percent of all transactions
This is disingenuous since it includes *all* transactions, many of which are rarely paid for in cash: rent, utilities, durable goods, etc.
I'm all for the removal of the lowest denomination coins and hope to see more of it. Same goes for coinage replacing low-denomination bills. But jiggery-pokery with the numbers works against the credibility of your arguments.
The article is definitely jaded towards getting rid of the penny. What we need to do is get rid of the Privately owned and operated Federal Reserve Bank and stop the inflation all together. How come prices stayed the same between 1857 through 1913? Answer, No Federal Reserve Bank to destroy the value of money!
I see what you are getting at, but with all due respect, I don't see that my numbers are "jiggery-pokery." I agree, the 0.2 percent, which is the number often cited, is as you say, disingenuous. That is because it includes the 95% (by dollar volume) of transactions that are large financial settlements between banks, dealers, etc. You are right that those are irrelevant. However, as I pointed out, even when you eliminate those, cash transactions are still only 2.4 percent of all transactions.
The point is, there is no way that getting rid of the penny could affect inflation of noncash transactions in any significant way. Things like your rent are usually in round dollars. Your refrigerator might be priced at 799.99, but if that is rounded up to $800, it is only a 0.00125% increase in the price. The bottom line is that even if all your cash transactions went up by 10% (already far-fetched), your total cost of living would still go up by only .024%. There is nothing disingenuous about it.
The chart based on the CPI is a joke. The CPI is a horrible way to gauge inflation for basic necessities. An example: gas right now is (approx. $3.70) at the highest level it has ever been for this time of the year which means by summer it will most likely be at an all time high price. CPI I believe is approx. 2%.
The multipiler to convert from a 1920's penny to now should be closer to 100, i.e. a 1920's penny is worth approximately $1. Newspapers were two cents then now they are $2.50 (NY times).
Regardless of how much a penny was worth, Pre-WWI it was definitely worth more than 10 cents. We should eliminate not just the penny, but the nickel and dime as well.
.Imagine a country with only quarters and dollar coins. We would have gotten rid of those annoying people that waste 3 minutes getting out the correct change!
Erik, You are 100% correct. Go to http://www.shadowstats.com to find a history of CPI and how they have manipulated it in recent years to show lower inflation than we actually have. There is a chart that shows exactly when the first manipulations took place and CPI calculated the way it once was diverges from recent government propaganda CPI numbers. Real inflation today is at about 10% per year.
Pennies and Nickels are the closest thing we have today to "honest money". When Federal Reserve notes are eventually devalued to the point the paper is worth more than the note, they will start dumping paper dollar bills, paper 5's, etc. Everyone reading this would do well to start hoarding pennies and nickels now. One day soon they will be traded in bullion shops and treated with the same reverence pre-1965 90% silver dimes quarters and half dollars now enjoy. In todays environment, buying the metals (and other commodities) is the only way to safely preserve the value of your assets.
damn straight!!!! KEEP THE CENTS!!!!!!!!! If you wanna save money get rid of the post office pretty sure they lose more money for government than the cent does lol
I call pennies.
Can somebody explain why ATMs in the US only give out 20s? In Europe, etc, you get a nice mix of 10s/20s, 50s, and 100s if you withdraw 500. In the US, you get this big wad o' cash, which is only enough to gas up two cars and by groceries.
You need to learn that, here in the U.S. we call them CENTS and NOT PENNIES! We live in the U.S. and not England!
well thats cuz the Euro is worthless and so is Europe lol. Here in the US u can gas up 2 Escalades and feed myself for a month on 500. CENTS!!!! If your in Europe quit worrying about what we do with our CENTS!!! Maybe it would be better time worrying about what Germany wants with all its gold before you need our help to win another war cuz you guys are your a p ons
ill pay cash for everyone in the countries transactions when its rounded down for a year and u give me the credit card with all the .17 .16 when i pay .15 no fees ect ect for running the cards and let me keep the difference if it doesnt matter. That money goes somewhere. Go watch OFFICE SPACE if nothing happens and its no problem to just start stealing cents!!!!!!!!!!!!!! The people saying it will take less time for transactions r the same people holding up the line and the roads while they text!!!!! Get rid of Obama and impeach his dumbocratic buddies if u wannn get rid of something around here
The post office is the only self funded branch of the government.
White House Petition to retire the penny:
Before any change occurs, how about pricing a gallon of gas without the dang 1/10th
fractions. $3.63 and 9/10ths per gallon. We're all just a small part of a cosmic joke !!
There is only one cause for "inflation"-when too much money is chasing too few products. There might be other causes for prices rising, but that would not be, strictly speaking, "inflation."
This is such an insignificant topic. Sooner or later all of these QE programs(money printing) will leave us with such a high rate of inflation that it won't matter. Inflation is now a part of our every day lives thanks to QE. How would we be able to tell if the penny is affecting inflation?
Did you read the article? This is not a vocabulary lesson. I guess that people like you just need to say something. Its better to remain silent and let people wonder about your intelligence than to speak and remove all doubt.
I agree with you that the penny issue has little significance for the macroeconomy.
With regard to your statement that "inflation is now part of our every day lives thanks to QE," I recommend that you read this earlier post discussing the difference between measured and perceived inflation: http://www.economonitor.com/dolanecon/2012/05/18/…
I just want to dip my hand in the money stream running outside my Wall Street window. Cents, nickels, quarters, half-dollars. It makes no difference to me.
"Catch-22 says they can do anything we can't stop them from doing."
dont forget the patent office is still in the black
It is time to let the penny go, I have advocated for years that we reform our currency to work better. We cannot afford to squander both money and productivity while America runs massive deficits. Currency should not be viewed as a toy;
The penny should have been redesigned to cost 1 cent, which would have solved the problem in the first place. What reason could doing away with it entirely serve? The business from just pennies could probably sustain a few hundred business in Canada. The change will hurt more than the 11 million a year, even if it cost every business only $1000, because that's a thousand dollars with a greater likelihood of being re-invested into more business, and a better economy. http://northenloans.ca/short-term-loans.html
We actually call them pence in England these days.
Once more the "leader" of the western world is far behind many smaller (and younger) nations, and is acting like an elderly person afraid of change. Look at the examples of Australia and New Zealand for example, where the smallest coin is now 5c, and they have $1 and $2 coins (and have had for some time). I doubt you will find one person there who would argue it was foolish not to change. And I won't even mention the topic of converting to the decimal system for measurements, distances etc
Maybe the Japanese should get rid of the yen. It's only worth about a penny.