Do pennies still make sense? Many economists, business people and ordinary folk believe they don’t. Pennies, they say, are essentially worthless, a nuisance to use, and costly to produce. Has the time come to say goodbye to the penny?
The first penny in the US was minted in 1793, and back then, a penny had real value. Economists note that a penny in 1923 was worth about as much as a quarter is today. But since then, inflation has eroded its value and now there is virtually nothing that can be purchased for one cent.
Shoppers often leave them on counters and many people do not even bother to pick one up off the ground. One study found that 11% of Americans prefer throwing away a penny to carrying one. Others make a wish and toss them into fountains.
There are other considerations, too. For example, they are costly to produce. Making a penny costs the US Mint 1.78 cents and administration, and distribution expenses add to this. These bring the total cost to 2.06 cents. In other words, the government loses more than a penny every time it makes one. In 2019, more than 7.04 billion were minted, which translated to a loss of $145 million.
The cost of rolling pennies, wrappers, packing and transporting them to banks and stores also costs money. According to the group “Citizens to Retire the Penny,” handling pennies costs more than $15 billion a year.
Pennies used to be made mostly out of copper, but since, 1982 zinc has become the main component. Zinc is harmful to the environment; when mined, it gets into nearby soil and streams and ultimately into the food chain. Furthermore, making, transporting, and distributing them is very energy-consuming.
There is still another drawback: time wasted. Shoppers and cashiers spend hours every year making change, waiting for change, and waiting on line while other shoppers get their change. Putting a dollar value on this is difficult but, as they say, time is money.
Used Less Frequently
To an extent, the penny is already being eliminated because a growing number of transactions are being made by plastic rather than cash. In 2017, cash was used for 30% of transactions; this figure dropped to 26% in 2018.
For these reasons, the US military no longer uses pennies on its overseas bases. And they have lots of company. In March 2012, Canada decided to stop making pennies, joining Australia, Brazil, Britain, Finland, Israel, the Netherlands, Norway, Sweden, and Switzerland.
If the penny is discontinued, should other low denomination coins also be eliminated? After all, they too have little value. For example, there is not very much that can be purchased with a nickel. And they cost 7.53 cents to manufacture, which generates a loss of $30.3 million per year. This isn’t an exorbitant amount by today’s standards, but given a nickel’s limited usefulness, is it justified? It costs only 3.73 cents to make a dime, but they too have limited benefits.
Support for tradition
Despite these drawbacks, many people want the penny to survive. A poll by Yougov.com found that 51% of Americans were in favor of keeping it. More than a third (34%) of respondents said they would be disappointed if pennies were discontinued and another 9% actually said that its demise would make them outright angry.
Another poll found that 77% of people want to keep pennies because they are worried about the rounding tax. They assume that if pennies were eliminated, businesses will round up to the nearest dollar, making items purchased slightly more expensive. (Studies, however, do not bear out this concern.)
Yet others have an emotional attachment to the penny because of its long history. As noted above, the government introduced pennies in 1793. By the way, the likeness of Lincoln has graced the penny since 1909.
Coin collectors also oppose eliminating the penny. While most of these are worth just one cent, collectors have come across some worth several thousand dollars, and in a few cases, much more than that. Whether or not they have value, collectors want them to survive. Miners also oppose their elimination.
For many years, there have been efforts to discontinue the penny. In the summer of 2001, those were gaining momentum, but were completely derailed after 9/11. These days, given the losses minting pennies and nickels generate and the already out of control budget deficits, those efforts are being revived.
In 2018, The Wall Street Journal asked two experts if pennies and nickels should be eliminated. Henry Aaron, a senior fellow at the Brookings Institution, answered yes. Among the reasons he cited: “Eliminating these coins will save money and simplify transactions. Other countries have dropped small coins and suffered no adverse consequences. And leading the penny patriots is a lobby funded by zinc producers, whose commodity makes up 97.5% of pennies.”
But Jay L. Zagorsky, an economist at Ohio State University and a professor at Boston University, disagrees. Demand for small denomination coins is soaring he said. In 2017, the Mint earned almost $400 million producing circulating coins, and pennies and nickels create demand for the more profitable ones. Moreover, eliminating pennies and nickels might suggest to some people that the U.S. currency is no longer strong and secure.
So which of these experts do you side with? A penny for your thoughts.