U.S. Penny Could be the Next Economic Casualty

After the recent announcement that Canada is pulling its penny from circulation, the debate about whether or not to keep the U.S. penny in production is buzzing once again. It’s a discussion that seemingly rolls around every few years that continuously yields the same result. For various reasons, the American people have voiced over and over again that they are reluctant to let go of their copper coins.

The argument to ditch the lowest common denomination of U.S. currency stems from the simple fact that a penny costs more money to make and ship than one cent. Penny production is priced at 2.4 cents per coin. In 2001, the U.S. footed a bill to the tune of $120 million to put less than $50 million of pennies into people’s pockets. Chairman of the President's Council of Economic Advisers under President George W. Bush, Greg Mankiw, explained, "When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful."

The concept seemed clear to Canadians, who determined it would be better in the long run to nix the penny and round up to the nickel. In a press release, the Canadian Mint wrote, “The decision to phase out the penny was due to its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environmental considerations, and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general.”

While rounding may sound like a dream to retailers, penny pinchers across the country are a little more skeptical. Penn State economics professor Raymond Lombra presented a study estimating consumers would eventually pay a "rounding tax" of $2 billion to $4 billion over the course of two years if the penny were eliminated. However, Robert Whaples of Wake Forest University says consumers would break even when stores start to round their prices. Other professors see the resistance to change the change in U.S. as more of notion of nostalgia. "The vast majority want to keep a penny, regardless of all the good arguments against it," Whaples said. "It's a sentimental attachment."

Killing the penny isn’t a new idea, but one that has arisen in many forms. In 1990, it was the Price Rounding Act. In 2001, it was the Legal Tender Modernization Act. Then in 2006, it was the Currency Overhaul for an Industrious Nation (COIN) Act. All were introduced and promptly defeated in Congress. "Yes it would speed up transactions, and yes that is good," Jeff Lenard, spokesman for the National Association of Convenience Stores, told CNN. “But if it's a convenience that the customer doesn't want, we're not going to question the consumers' decision.”

Maybe the answer isn’t to eliminate the penny but simply put a stop production on the coin for the time being. Coin-collecting enthusiasts know their two cents can be worth millions under the right circumstances.

Photo courtesy of Arvind Balaraman at FreeDigitalPhotos