A 2-1/2 cent piece for your thoughts?
One of my biggest complaints about U.S. currency policy, apart from ‘Big-Headed’ bills and extraneous nickels, is that no one has any plans whatsoever to get rid of the penny. Nearly worthless, the U.S. Mint produces 13 billion pennies a year at a cost of .72 cent per penny. The penny lobbyists (yes, there really is such a thing) over at Americans for Commen Cents (ACC) will have us believe that that the Department of the Treasury actually makes a .28 cent “seignorage” (profit) from every penny, amounting to an estimated $40 million in 1994.
I think the penny lobbyists are guilty of “fuzzy math.” According to testimony from the General Accounting Office (GAO) as early as 1997, “production and distribution of the penny is no longer profitable to the government.” This would only seem logical. Military installations overseas no longer use pennies because the costs of transportation far outweigh any of the benefits. Some banks now charge as much as ten costs per coin roll.
The Treasury might be making a modest profit off the penny; it’s difficult to say without looking at all the hidden costs. Certainly, the U.S. Mint has an interest in maintaining the status quo, considering that penny production accounts for a whopping 71 percent of all coin production. Penny costs to the rest of American society do not seem to be taken into account. For example, how much does the banking industry pay yearly in armored transportation costs? How much do charitable organizations spend yearly in counting and rolling donated pennies?
A much more sobering thought is the amount of time wasted in retail transactions with cashiers fumbling around for correct change. In our increasingly retail-centric economy such considerations should not be taken lightly. Let’s suppose that the average cashier loses three minutes a day messing around with pennies, which is probably a very low estimate. If you multiply three minutes lost per day by the millions of retail employees in the United States, you have a very large number.
What purpose does the penny serve? A penny hasn’t bought anything in at least twenty years. The Mint produces 13 billion pennies a year because American consumers aren’t spending them. They gather dust in mason jars, get tossed in the garbage, and roll into storm drains. The alternative remains unthinkable, though. To be completely rid of the penny amounts to sacrilege. For sentimental and historical reasons, there is widespread mistrust of sending a coin (with arguably our greatest president on its face) to the dustbin of history.
There is an alternative, however, that no one seems to have considered. The penny could easily be replaced with a 2-1/2 cent piece, even sporting Lincoln’s likeness, with great benefit to society. The fear of price gouging from a sudden jump to the nickel disappears. The argument that charities would suffer holds little, if any, water. If anything, the jump to a 2-1/2 cent piece would likely increase charitable donations as people recognize the importance of charity, as opposed to ridding their pockets of pennies for the sake of convenience.
It might seem that getting into 2-1/2 cent transactions would become even more confusing, but the exact opposite is true. Two-and-a-half cents divides equally into all the other coin denominations. With one stroke, you have gone from a hundred change possibilities to forty, and you have eliminated hundreds of coin combinations. A coin of no value suddenly would have a very small value, and that is important.
How would a 2-1/2 cent world function? Local and state sales taxes would necessarily be paid by businesses themselves. The penny would continue to have a virtual value in bank transactions and the like. Retail transactions would be vastly simplified, saving thousands of work hours a week. Hopefully, people will begin to spend their 2-1/2 cent pieces after they realize that they do in fact have some value.
Some argue that other leading industrialized nations have low denominational coins, including Canada and the European Union. However, these entities copied our currency. Having lived in Norway for nearly a year (hardly a third-world country) I can say from experience that having higher valued coinage only encourages a respect for money and a more uniform pricing system. The lowest valued Norwegian coin, the 50 øre piece, is currently valued at roughly 3-1/2 cents. Fifty years ago the Norwegians had a one øre piece.
Change in currency is inevitable. It is the natural consequence of inflation and changes in consumer spending. The 2-1/2 cent piece would be a natural bridge to the nickel becoming the smallest coin denomination. I imagine it being of similar composition as the penny (97.5 percent zinc / 2.5 percent copper) but being instead slightly larger than the nickel, mostly to help consumers recognize the new value.
The U.S. Mint and mining interests would very likely be against any changes in the current system. Mostly they are against the discontinuation of their lifeblood – production of the penny. I wonder how they would respond to a changing of the penny into a higher-valued coin that would simplify financial transactions and create value where there is none. The 2-1/2 cent piece makes perfect sense. At any rate, change will come to the penny, sooner rather than later.
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(This article was originally published by Right Turn, an independent University of Washington publication, in April of 2004. I have left the original content in tact, except for a few minor changes. All information presented was current at the time of publication. The featured graphic is a composite image created by Mike Tomren.)
[August 2020 commentary: Looking back, I always expected this particular article to fare the worst over time, as far as relevance. I could not imagine that we would still be using pennies in 2020, or that the ACA “penny lobby” would still be active, even at the same url. In 2019 it is estimated the penny costs 1.99 cents to produce, down from 2.06 cents in 2018. In truth, by now we should be considering moving to the nickel as the lowest coin denomination, or even a 12-1/2 cent piece or quarter.
But while this may seem an issue unique to the U.S., many other global currencies face a similar dilemma. One standout is Canada; the Canadian cent was withdrawn from circulation on Feb. 4, 2013, and Canada began melting pennies down that same day. Today, the few pennies out there are still legal tender, provided they were minted after 1982 and that the amount is less than 25 cents. Likewise, Australia removed its one-cent coin from circulation way back in 1992 and has not looked back.
In the United Kingdom meanwhile there has been a steady drumbeat of voices calling for the end to one-penny and two-pence coins, the most recent effort in the Spring of 2018. The UK government estimated in 2018 that 60% of copper coins are only used once before either being stored or thrown away. Cash transactions have decreased over time but remain stubbornly high at approximately one third of all transactions. Regardless, in 2019 the government decided to withdraw this effort indefinitely due to concern about the impact on charitable donations and the impact to elderly and vulnerable populations.
In the euro zone the one-cent coin is also still in use, but only in certain member states. Of the 19 euro zone states, the Netherlands, Finland, Ireland, Belgium and Italy have already phased out use of the coin, instead using so-called “Swedish rounding” to round transactions to the nearest five cents. Getting rid of the one-cent coin has been discussed as recently as January of 2020, but there is still no agreement. With the euro zone part of the debate is also related to national economies, with some of the poorer member states relying more heavily on lower denomination coins.
What no one could have predicted, myself included, is the 2020 COVID-19 pandemic and its widespread disruption of commerce. The U.S. coin shortage began to present itself in June and extended into July and beyond. Many national retailers have stopped giving change entirely, including Kroger, Walmart and CVS. Instead, many companies have taken to loading change onto store gift cards. Other stores have stopped taking cash entirely, when it is legal to do so. A friend came up with the term “coroned” to describe people, companies or events that have been negatively impacted by COVID-19. In this case, U.S. coinage has certainly been #coroned over the last few months, with no end in sight.
Another unexpected development, unique to the penny, is that coin collectors and speculators have taken to hoarding pennies that were minted before 1982 (and the first half of 1982). Older pennies were composed of 95% copper and 5% zinc. Beginning in the latter half of 1982 pennies are now composed of 97.5% zinc and 2.5% copper. The spot price of copper will vary, but currently each older penny is valued at two cents for its copper content alone.
Although it is illegal to melt down pennies and nickels, and will likely continue to be so, so-called “penny hoarders” have amassed hundreds of pounds of pennies with the idea of one day cashing in. When and if the penny is finally discontinued it will presumably become legal to melt down pennies for their metal content. At that time, the hoarders will likely double their money or more, depending on the spot price of copper at that time.
The question remains, what do these developments mean for the future of the penny? No one knows. Perhaps COVID-19 especially will bring about the much-feared “cashless society” often discussed in conspiracy circles. Or perhaps these events will simply hasten the elimination of lower denomination coins, as argued in a recent CNN piece. On the other hand, if there is a local or global economic collapse perhaps the penny may have renewed importance in the future.
In closing, the future of the penny is an uncertain today as it was 16 years ago, when I first wrote this article. It will be interesting to look back on this article in another 16 years to see what may have changed in the meantime.]
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