It is normal for even the healthiest currencies to experience some inflation because it shows that both businesses and consumers are buying products and services. Although this phenomenon is so minute that it can seem unnoticeable, it can build and build over time until the smallest units of currencies lose so much purchasing power that they become useless. There are a number of reasons that pennies have managed to reach this point, meaning that it might be time to retire them from circulation for the sake of reducing costs if nothing else.
Here are five reasons that pennies are costing the United States billions of dollars
1. Pennies are made using copper-plated zinc. Unfortunately, this means that the increasing cost of metals has resulted in the increasing cost for making pennies, which is particularly problematic because all indications suggest that metals will become more and more expensive in the future in spite of short-term fluctuations in its price. As a result, it cost the U.S. Mint 1.67 cents to make 1 cent in 2015 after factoring in the costs of materials, production, and distribution, which is a fall from 1.83 cents in 2013 and 2.41 cents in 2011 because of recent economic turmoil all around the world. In fact, the problem of the increasing cost of materials for making pennies is so well-known that it has caused some criminals to start melting them down in order to sell their constituent metals, which is actually an old problem making a comeback in a new age.
2. The increasing cost for making pennies could be justified if pennies were seeing sufficient use, but the problem is that pennies are seeing less and less use as time passes. For example, pennies would still be useful for buying groceries with cash if it wasn’t for the fact that most people can’t be bothered to use them because they can’t calculate the exact prices for their purchases in their heads, meaning that they don’t want to root around their wallets for pennies while standing before the register. Similarly, pennies would still be useful for making small purchases from vending machines if it wasn’t for the fact that handling such a large number of coins would be inconvenient for both businesses and customers. As a result, while pennies still have theoretical uses, their practical uses are being phased out one by one, thus suggesting that it might be time for phasing them out as well. After all, one of the most fundamental purposes of currency is to facilitate exchange, meaning that when a unit of currency becomes so low-value that most people can no longer be bothered to make use of it, it is time to still considering whether it still has a place or not.
3. A serious argument can be made that handling pennies costs more time and effort than what they are worth. In short, it takes about 2 seconds for people in the United States to earn 1 cent based on a median wage of $17 per hour in 2011, meaning that a transaction involving pennies that lasts longer than 2 seconds is not worthwhile. As a result, whenever someone insists on using pennies for their transactions, they are not just wasting their own time and effort but also the time and effort of those who are interacting with them, thus resulting in serious losses from a productivity standpoint. Some economists have used this to estimate a loss of more than $3 per person on an annual basis from having to handle pennies, which would sound insignificant if it wasn’t for the fact that this translates to more than $1 billion for the entire United States on an annual basis.
4. According to Robert Whaples, who is a professor of economics at Wake Forest University, research has shown that the elimination of pennies would have a negligible effect on the price of products and services. Although the elimination of pennies would cause the prices of some products and services to be rounded, some of them will be rounded up while others will be rounded down, meaning that they will be cancelling each other out. As a result, the net effect will be next to nothing. Better still, this means that an argument can be made that eliminating the need to waste time and effort on transactions involving pennies can actually benefit the poorest by letting them focus on more productive things, which is particularly important because they are the ones who are most likely to suffer from price changes.
5. Finally, it should be mentioned that the discontinuation of pennies has historical precedent on its side as well. Before 1857, the United States had a half-cent coin, which was discontinued because its value had fallen so low that it was no longer practical for day-to-day use. However, it is important to note that the half-cent coin had about the same amount of purchasing power as 11 cents in 2011, meaning that the 1 cent coin of modern times has the least purchasing power of any coin that has ever been issued by the United States. Simply put, while removing a particular coin from circulation can create uncomfortable feelings, the precedent shows that it can be done without disastrous consequences.
For those who are concerned about unforeseen calamities from the discontinuation of pennies, it should be mentioned that countries such as Canada and New Zealand have implemented such policies in recent times without noticeable detriment to themselves. Although these countries are not perfectly comparable to the United States, they are nonetheless close enough that their experiences should prove useful for informing the implementation of similar policies here at home. As a result, those who are concerned about a potential discontinuation of pennies in the future should relax knowing that it will not be a significant disruption to their lives, particularly since enormous amounts of time, effort, and other resources will be put into making sure that the potential consequences are minimized as much as possible.