Those closest to me know that an issue which has always been one of my
pet passions is that of penny and nickel elimination. As such, it was with joy that I read reports
this week that the Treasury Department will begin removing pennies and nickels
from circulation starting in 2013. This
should be just the first step that the nation takes to modernize our currency
system in order to save money.
Some may argue against the
elimination of these two coins by claiming that it is unprecedented to simply
remove a monetary denomination from the system.
This is not true, however, as American history tell us. Along with the coinage we use today, there
was an additional coin minted at the beginning of the nation: the half-cent. As the name clearly suggests, this coin was
worth half of a penny. These coins were
minted for sixty-four years until Congress discontinued them in 1857 due to
popular disuse. While the half-cent was
the oldest of all discontinued coinage, it is not alone. At various times Congress authorized the
production of two-cent and three-cent coins, but these never lasted more than a
decade.
Additionally, the United States will
by no means be the first nation to eliminate its smallest and second smallest
denominational coins. Canada has decided
to eliminate its penny as well; its final penny was minted on May 4, 2012. Sweden, Norway, and Denmark have all
discontinued production of almost all their coin denominations. Australia, New Zealand, and Mexico have all
removed their lowest cent coins as well.
As have Israel, the Netherlands, Brazil, India, Argentina, and Costa
Rica.
There are two fundamental arguments
for the elimination of the penny and nickel.
The weakest, but still potent, is that of use. Pennies and nickels are almost never used
outside of being exchanged at a Coinstar machine. Vending machines even accept pennies and I
defy anyone to tell me they use nickels in vending machines with any
frequency. The most common use of these
two coins is that of receiving them as change.
Once a consumer receives them as change, they often end up in a jar
somewhere waiting to be taken to the aforementioned Coinstar machine.
The more important reasoning for the
elimination, and the one which can hardly be argued against, is the simple fact
that they are a waste of money. In this
era of spending cuts, the fact that the penny and nickel have survived this
long is astonishing. A 2012 penny, worth
one cent, costs the government nearly two and a half cents to produce. A 2012 nickel, worth five cents, costs the
government over eleven cents to produce.
All told, the annual loss the government sustains due to these two coins
is over $116 million dollars.
This problem did not catch the
government by surprise. The Treasury
Department has minted pennies and nickels at a loss for a decade. When the worth-to-value discrepancy became
known to the general public, the U.S. Mint had to scramble to approve new rules
which forbade the melting down of the pennies and nickels in order to sell the
metal at a huge profit. The fact that
there was never a serious proposal to eliminate these coins in the past four
years, which were marked by constant dealing over spending cuts, is
astonishing.
The elimination of the one-cent and
the five-cent pieces will change the pricing game nationwide, but not in any
serious way. Total prices will be
rounded to the nearest dime before the sales tax is levied. Sometimes, in the case of a total purchase of
$75.36, the consumer will have to pay more due to rounding, but other times, as
in the case of a $65.84 price, the consumer will save money. However, an additional factor which provides
support for the elimination is that this rounding will only occur for purchases
which are paid for with physical currency.
These types of purchases do not occur as often as they used to, as most
transactions in contemporary society are paid for via credit or debit
card. Costs will not be rounded when
paid by credit or debit card because there simply is no need to; the eliminated
coins never enter the equation.
Similarly, money in bank accounts will not be rounded as banking
services become more and more computerized.
This is just the first step in the
right direction towards a cost effective and efficient currency system. The next logical issue to tackle is that of
dollar coins. The Mint has tried several
times in the past two decades to introduce dollar coins in the system, but each
attempt has been met with failure. This
is not because the plan is faulty, but rather because the general public
believes that the dollar coins will become more valuable as time goes on so
they hoard them. This takes most of the
coins out of circulation, thus defeating the purpose of introducing them in the
first place.
In a
perfect world, the Mint would slowly phase dollar bills out of circulation and
reintroduce dollar coins. The phase-out
of bills would require the public to actually use the dollar coins as opposed
to hiding them in their sock drawer.
While bills are cheaper to print than the coins would be to mint, the
government would save money in the long run ($4.4 billion over thirty years
according to the GAO) due to the durability of coins. Bills can be destroyed countless ways, while
coins can only be destroyed in one: melting, which would take a crucible to
achieve. As I type this, I have an 1877
Trade Dollar silver-dollar coin in my pocket.
There is a reason why the coin has lasted one hundred thirty-five years
while the bills in circulation at that time have not.
With
the elimination of the penny and nickel, the government not only scores a
victory for common sense, but also an important spending cut. One can only hope that this is not the last
reform done to the American currency system in the coming years.
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