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Payment Methods: Should the Penny Be Eliminated?

By Mike Faden

Debate about whether to eliminate or keep the venerable one-cent coin has continued for decades.1,2 Proponents of abolition say that eliminating pennies could save millions, because they cost more to produce than they are worth; that they are rarely used as a payment method anymore; and that they create disproportionately high handling costs for businesses.3,4

Those who want to save the penny argue that it helps keep prices in check and fuels charitable causes—and that most Americans support keeping the coin.5 The discussion has continued in 2017 following the introduction in U.S. Congress of a bill that proposes suspending production of the penny.6,7

 

The Penny's Rising Cost

 

The U.S. has been producing pennies since the late 1700s.8 Due to the rising cost of production, including the zinc and copper used in the coins, it has cost more than a cent to produce each one for more than a decade.9 The U.S. Mint produced 9.1 billion one-cent coins in 2016, more than any other denomination. It cost 1.5 cents to make each one, resulting in a net loss of $46 million.10

 

The nickel also lost money, but the quarter coin generated a surplus because of its higher face value; each one cost only 7.6 cents to make, less than a third of its nominal value.11

 

Declining Value as a Payment Method

 

The penny's value as a payment method has steadily declined, due to inflation. The U.S. stopped producing the half-penny coin in 1857, and the group Citizens to Retire the Penny argues that the retirement of the one-cent coin is long overdue since it's worth far less in today's economy than the half-cent was when it was retired as a method of payment.12,13

 

As a New York Times article put it, "The federal government makes and distributes coins to facilitate commerce, but not much can be bought for less than five cents. Thanks to the magic of inflation, what cost a penny in 1950 requires a dime today." The article estimated that in 2015, American workers on average earned nearly a penny a second. As a result, "It's literally not worth their time to bend down and pluck one from the sidewalk."14

 

Even back in 1996, the U.S. General Accounting Office noted that the penny was not widely used as a payment method. "With its relatively small purchasing power, the penny is used primarily to make change for cash transactions and for the most part does not circulate after initial receipt by the public," it said in a report presenting options for the coin's future.15

 

Proponents of abolition also point out that other countries have abolished their lowest-value coins without apparent problems. Canada stopped making pennies in 2012, for example.16,17 Australia stopped making its one-cent (and two-cent) coins in 1992, citing minting costs and the loss of purchasing power through inflation.18 The U.K., however, has retained the 1200-year-old English penny, although the Governor of the Bank of England reportedly suggested it could be scrapped in coming years.19

 

Some estimates suggest that keeping the penny creates significant costs for businesses. Citing a survey by the National Association of Convenience Stores and a major pharmacy chain, some authors have suggested that handling pennies can add 2 seconds or more per cash transaction.20

 

Reasons for Keeping the Penny

 

A number of surveys have shown that respondents want to keep the penny. In one 2014 survey, 51 percent of respondents said they opposed eliminating the coin, with only 34 percent in favor of elimination; 43 percent said they would be disappointed or angry to see the penny go. And the survey responses also contradicted assertions that pennies are not worth stooping to pick up: 71 percent of respondents said they were more likely to stop and pick up pennies they come across, rather than leaving them lying on the ground.21

 

The penny's supporters argue that the coin remains valuable in several ways, and that cost-reduction arguments are largely myths because they include fixed costs that would continue to be incurred for minting other coins even if the penny was eliminated.22 They point out that charities have used the collection of pennies as a way to raise funds.23

 

Supporters also say that eliminating the pennies as a payment method would result in price rounding, causing price increases for consumers and businesses.24 However, one economist's analysis contradicts that claim, suggesting that prices would be rounded downward roughly as often as they would be rounded upward.25

 

Moves to Stop Making the Penny

 

Several bills introduced in the U.S. Congress have attempted to eliminate the penny, without succeeding.26,27 The most recent attempts were introduced in the U.S. House and Senate in the spring of 2017 and were still pending in October.28,29

 

The Senate bill, which has received the most attention, proposes suspending the production of one-cent coins for a 10-year period, saying that sufficient pennies already exist to meet demand and that taxpayers lose money minting the coin. The bill says the Government Accountability Office watchdog agency should study the effect of this temporary suspension and report on whether production should remain suspended. The bill also recommends reducing the cost of producing other denominations: it proposes cutting the cost of the nickel by using a cheaper mix of metals; and replacing the dollar bill with a longer-lasting coin to save money over the long term.30 The bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs.31

 

The

Takeaway:

The penny-elimination debate has persisted for decades. Elimination proponents say it costs more to make than it's worth, its value as a payment method has declined, and handling it adds cost to businesses. Opponents say elimination may raise prices and negatively impact charity fund-raising. There's also an emotional element: surveys have found most Americans favor keeping the coin.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners

Sources

1. “The Penny Stops Here,” The Washington Post; http://www.washingtonpost.com/wp-dyn/content/article/2006/09/24/AR2006092400946.html
2. “The penny may be worthless, but let’s keep it anyway,” Salon; https://www.salon.com/2017/09/02/the-penny-may-be-worthless-but-lets-keep-it-anyway_partner/
3. “Why Doesn’t the United States (Finally) Get Rid of the Penny?,” The New York Times; https://www.nytimes.com/2016/10/11/insider/why-doesnt-the-united-states-finally-get-rid-of-the-penny.html
4. “The Penny Stops Here,” The Washington Post; http://www.washingtonpost.com/wp-dyn/content/article/2006/09/24/AR2006092400946.html
5. “The Penny's Impact: Every Cent Counts!,” Americans for Common Cents; http://www.pennies.org/
6. “H.R.2299 - Currency Optimization, Innovation, and National Savings Act of 2017,” Congress.gov; https://www.congress.gov/bill/115th-congress/house-bill/2299
7. “S.759 - Currency Optimization, Innovation, and National Savings Act of 2017,” Congress.gov; https://www.congress.gov/bill/115th-congress/senate-bill/759?q=%7B%22search%22%3A%5B%22S.759%22%5D%7D&r=1
8. “Penny (United States coin),” Wikipedia; https://en.wikipedia.org/wiki/Penny_(United_States_coin)#Composition
9. “Penny Costs 1.5 Cents to Make in 2016, Nickel Costs 6.32 Cents; US Mint Realizes $578.7M in Seigniorage,” CoinNews.net; http://www.coinnews.net/2017/02/21/penny-costs-1-5-cents/
10. United States Mint 2016 Annual Report, U.S. Mint; https://www.usmint.gov/wordpress/wp-content/uploads/2017/02/2016AnnualReport.pdf
11. Ibid.
12. “Half cent (United States coin),” Wikipedia; https://en.wikipedia.org/wiki/Half_cent_(United_States_coin)
13. “It makes "cents",” Citizens to Retire the Penny; http://www.retirethepenny.org/it_makes_sense.html
14. “Why Doesn’t the United States (Finally) Get Rid of the Penny?,” The New York Times; https://www.nytimes.com/2016/10/11/insider/why-doesnt-the-united-states-finally-get-rid-of-the-penny.html
15. Future of the Penny: Options for Congressional Consideration, U.S. General Accounting Office; http://www.gao.gov/assets/110/106568.pdf
16. Ibid.
17. “Penny (Canadian coin),” Wikipedia; https://en.wikipedia.org/wiki/Penny_(Canadian_coin)
18. “One Cent,” Royal Australian Mint; https://www.ramint.gov.au/one-cent
19. “After 1,200 years, could it really be time for the penny to be dropped?,” The Telegraph; http://www.telegraph.co.uk/news/2016/09/16/traditional-british-penny-could-be-scrapped/
20. “The Penny Stops Here,” The Washington Post; http://www.washingtonpost.com/wp-dyn/content/article/2006/09/24/AR2006092400946.html
21. “Poll Results: Pennies,” YouGov/Huffington Post; https://today.yougov.com/news/2014/01/10/poll-results-pennies/
22. “The Value of the Penny -- Myth vs. Reality,” Americans for Common Cents; http://www.pennies.org/index.php/penny-myths-facts
23. Ibid.
24. Ibid.
25. “It's time to eliminate the penny,” CNN; http://www.cnn.com/2012/02/17/opinion/whalpes-pennies-economics/index.html
26. “Managing Change: Is the Penny Worth Keeping?,” The Wall Street Journal; https://www.wsj.com/articles/SB116360150549923901
27. “Penny debate in the United States,” Wikipedia; https://en.wikipedia.org/wiki/Penny_debate_in_the_United_States
28. “S.759 - Currency Optimization, Innovation, and National Savings Act of 2017,” Congress.gov; https://www.congress.gov/bill/115th-congress/senate-bill/759
29. “H.R.2299 - Currency Optimization, Innovation, and National Savings Act of 2017,” Congress.gov; https://www.congress.gov/bill/115th-congress/house-bill/2299/text
30. “S.759,” Congress.gov; https://www.congress.gov/bill/115th-congress/senate-bill/759/text
31. “S.759 - Currency Optimization, Innovation, and National Savings Act of 2017,” Congress.gov; https://www.congress.gov/bill/115th-congress/senate-bill/759

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