The decision of wether to keep the penny as a unit of American currency is becoming an increasingly hot topic. The debate has even been brought before congress, twice, but neither of the bills, advocating the elimination of the penny, were approved. Even President Obama has stated his willingness to abolish the penny on February 15th, 2013. Saying,”Anytime we are spending money on something people do not use, its something that we should change.”
The first argument against the penny is that pennies actually cost more to make than they are worth. According to the US mint’s 2013 annual report, every penny cost 1.8 cents to make. Granted, the total cost of minting pennies was only $58 million last year, less than one-tenth of a percent of total federal spending, but groups like Citizens to Retire the U.S. Penny have long been making the economic case for getting rid of the penny. Even the U.S. military has already decided they’re essentially useless with Army and Air Force Exchange Service stores on bases rounding all cash purchases up or down to the nearest nickel.
When looking at the costs and benefits in aggregated terms, there have been studies that have shown that the penny results in an annual loss of $900 million in the US economy each year. How did they come by this number? The economist Robert Whaples stated that every cash transaction that involves pennies takes two extra seconds because people are fishing them out of their purses and pockets. He and others have stated that aggregated, these two second delays add up to a loss of productivity and opportunity cost of use worth $900 million to $1 billion dollars. He also argues that eliminating the penny could make people keen on using $1 coins, which would save the US an additional $500 million a year because coins are more durable than bills which are torn and lost easily.
The second most compelling argument is that penny’s these days have limited utility, not being accepted at many parking meters or vending machines. Economist Greg Mankiw says that “The purpose of the monetary system is to facilitate exchange, but… the penny no longer serves that purpose.” There has never been a coin in circulation in the US worth as little as a penny is today.
- Taking into account the arguments of those in support of abolishing the penny, which tend to focus on statistics of aggregated costs, it will not happen. Popular support for the penny is still high, at 67%. In addition, Keynesian idea of “menu costs” is something that has not been researched fully. If the abolitionists want the penny to be taken down, they will have to approach it from the stand point that we should limit all of our physical currency monetary transactions and switch to e-currency.