Why We Need to Keep the Penny (and Dollar Bill) in Circulation
Around the State
The Canadians are getting rid of their penny. Let them. Let's be smarter than they are and cling to ours like ivy on a garden wall.
Why? Because changing currency hurts consumers and it hurts the economy. It is always -- always -- an excuse to round up. Ask consumers in Australia, Sweden, Brazil, Finland, Israel and six other countries where small notes and coinage were taken out of circulation.
Ask especially in the United Kingdom, which last year "celebrated" its 40th anniversary of decimalization.
I mention this now because Canada's decision last week is sure to rekindle our own on-again-off-again kill-the-penny conversation. We've had a number of attempts in Washington in the last 10 years. It wouldn't surprise anyone if some member of Congress in search of an issue used Canada as a ramp into new legislation to do the penny in.
The alternative to the penny is rounding transactions to the nearest nickel. That will make goods and services more expensive. A gallon of gas, for example, will rise in nickel increments. Ditto, postage stamps.
The objective of any business -- and who can blame it? -- is to maximize profits, so with the rounding up of prices, research suggests that consumers would spend an additional $600 million a year.
Inflation from rounding up would in turn have a significant impact on government spending: A report by an economics professor at Penn State estimates that abolishing the penny would result in an extra $1 billion in government spending over five years, because payments from many government programs are tied to inflation.
Opponents of the penny argue that no one will miss it because few people use cash anyway. They say people don't even pick up pennies off the street anymore, they annoyingly load up pockets and change purses, and they just don't reflect today's reality. But here's the problem: The majority of purchases of $10 or less are still made with cash. Many low-income Americans don't have bank accounts or credit cards. Rounding would hurt all Americans, but the poor and other disadvantaged would be disproportionately affected.
Don't get me wrong, the penny -- 2.5 percent copper and the rest zinc -- definitely makes a case for its detractors. It costs 2.41 cents to produce it. That's up from 1.23 cents in 2006, when the cost of making a penny first crossed the threshold of an actual penny.
And the nickel? It now costs 11.18 cents to make that coin -- which is composed of 25 percent nickel and the rest copper -- up from 5.73 cents in 2006.
But the answer isn't to dump either coin. Even Treasury Secretary Timothy Geithner said last week that his agency's budget is proposing to change the composition of nickels and pennies to make them cheaper to produce.
Geithner said this in written testimony to the House Committee on Appropriations: "Currently, the costs of making the penny and the nickel are more than twice the face value of each of those coins. In addition to this proposal, Treasury is implementing measures to improve the efficiency of coin and currency production, including improved manufacturing practices and administrative cost reductions, which will save more than $75 million in FY 2013."
While Geithner didn't mention what materials would be used, Republican Congressman Steve Stivers of Ohio introduced legislation in December proposing that pennies and nickels be made of steel, which is cheaper to produce than nickel or copper.
There is, perhaps, more pressure on our existing currency structure to get rid of the dollar bill. The dollar bill, for Lord's sake.
The U.S. Government Accountability Office drew this conclusion in its 2012 annual report: "Legislation replacing the $1 note with a $1 coin would provide a significant financial benefit to the government ... of approximately $4.4 billion over 30 years, amounting to an average yearly discounted net benefit of about $146 million."
In fact, one of the more obscure fights going on in Congress right now: whether to replace the dollar bill with a coin.
Democrat Tom Harkin of Iowa, who co-sponsored the coin bill in the Senate, argues that replacing the paper dollar would be better for the environment and save the taxpayer lots of money. Coins cost three times more to produce than a paper dollar, but they have a much longer lifespan.
Trouble is, Harkin's enthusiasm for the dollar coin isn't necessarily driven by love of environment. In fact, the impetus for the coin bill came from big copper mining interests. They hang out bigtime in Harkin’s home state and aren't known for being especially eco-friendly, either. PMX Industries is one of the country's largest suppliers of copper, and Harkin has been its super longtime supporter. And, did I mention that it also supplies metals to the U.S. Mint?
Chief sponsor of that bill in the House is Republican David Schweiker of Arizona. His state is also home to large copper companies backing the bill, and they've contributed to his campaign. Arizona Sen. John McCain, with Harkin, is co-sponsor of the coin bill in the Senate and, of course, also received beaucoup funding from a big Arizona copper company.
Thank heaven our Treasury Department has proven fairly incompetent at making coins Americans want to carry, because if we really want to lose money, we can replace dollar bills with coins that psychologically and just about every other way look and spend like quarters.
The reason I can testify to this is that I was living in the United Kingdom in 1971 when the country's pounds-shillings-pence system changed to decimalization. Certainly, decimalization made it easier for everyone to count out money. And it made the U.K. more competitive in a shrinking world marketplace. But, overnight inflation skyrocketed and the standard of living plummeted.
All denominations were rounded up simultaneously. Overnight.
I remember that an order of fish and chips cost the British equivalent of 85 cents one day and nearly $2 the next; a gallon of gas was $1.25 one day, $2.25 the next; a haircut $2 one day, $5 the next. It was that dramatic. And it took a long time for paychecks to catch up -- sadly, some never did.
In England, it all started with losing the halfpenny.
Here, no doubt it will be the penny.
What are people going to pinch? Will thoughts cost a nickel?
Lesson from this once-upon-a-time, riches-to-rags American living in Britain: Fight like a dog to keep the money you've got.
Reach Nancy Smith at firstname.lastname@example.org or at (850) 727-0859.