It is time to retire the penny and nickel from circulation — to pinch the penny, nick the nickel, and change our change. Since 2006, the penny costs more to produce than each individual coin is actually worth (at 2.4 cent cost for every penny). For every nickel minted, a production cost of 11 cents is required. The purpose of money is to facilitate transactions. Neither coin does this. They are a leach on resources and the country would be better off without them.
The prevailing argument against removing the penny and nickel from circulation appeals to our collective patriotism. Lincoln and Jefferson loom large in our American pantheon. To remove their image is unpatriotic and an inglorious affront to our history. To those who feel the move away from the penny and nickel constitutes some sort of ‘merican faux pas, I would point to the United States Military, who abandoned the penny several years ago. They no longer permit the penny on any military bases and simply round to the nearest five cent mark.
The United States has already done this before. Shortly after the Civil War, the US Mint stopped production of the half-cent because it’s value had diminished to such a point that it no longer made sense to carry around. Surprisingly, at the time of the half-cent’s retirement, it had more purchasing power than a dime does today.
There are still more reasons why removal is the correct approach. One is the loss of opportunity and productivity costs. Most people do not carry pennies and nickels in their pockets. Why is that? For many of us, it is simply a matter of pocket/wallet/purse space. Carrying coins around is bulky and heavy. Many people cannot produce these coins until they are rung up at a cashier, since many places – like supermarkets – don’t include sales taxes with their shelf casino pa natet prices. This then requires the removal of heavy coins from your pocket/wallet/purse, the exact counting of said coins and the final exchange of money and goods. This entire process – if you’re lucky – wastes perhaps a couple seconds. No big deal, right? Wrong. Two economists, Greg Mankiw and Robert Whaples, calculated the opportunity cost lost per annum for the United States every time a nickel or penny is required in a transaction. Mankiw estimated that the US economy lost $1 billion dollars; Whaples found it to be $300 million. These things add up.
Pennies and Nickels also hurt the environment. Originally, pennies were 100% copper. This changed as the price of copper increased and the spending power of the penny decreased. Today the penny is 5% copper and 95% zinc. Nickels are 25% nickel and 75% copper. The result of mining these materials results in environmental costs. Zinc is the worst offender. In its pure elemental form, Zinc is a pollutant to ground and surface water as well as a contributor to air pollution when incinerated. The removal of pennies and nickels from circulation would be ecologically beneficial.
Opponents point to several reasons as to why pennies and nickels should remain in circulation, none of which are compelling and all of which break down under scrutiny. The first is known as the “rounding tax.” Without the penny or nickel, stores will have to round all prices to the nearest ten-cent mark and the natural inclination by many storefronts will be to round up, ultimately hurting consumers. The rounding tax would naturally result in increased prices, an increase in inflation, a decrease in charitable giving and economic harm to the poor.
The results from other nations around the world that have removed coinage from circulation tell a different story. New Zealand, Australia, Finland, the Netherlands, and Canada all have removed their one-cent equivalent and none of them witnessed rounding price increases or a drop in charitable spending. Further studies by Robert Whaples confirm this. His 2007 study suggested that at most Americans would see a 1/40th increase in prices.
Turns out, the biggest proponents of keeping these coins in circulation are lobbyists for zinc and nickel mining. Jarden Zinc Products, since 2006, has spent several million lobbying Congress to keep the penny and nickel. It’s a good deal, since the penny’s profitability is a whopping – $55 million in 2013.
Congress has made some preliminary steps. In 2010, the Coin Modernization, Oversight and Continuity Act was passed. It’s goal was to provide the US Mint with funds to begin studies on the altering of metal compilation for a number of coins, including the penny and nickel.
But the writing is on the wall. Inflation happens, and over time, our least valuable currency falls by the wayside. The time has come to retire the penny and nickel.
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