When I was a child I used to sort and snap them into the round cavities of a special blue paper folder. Right now there’s a whole jar of them sitting on my kitchen table from countless times emptying my change purse. But I’ve never seriously thought about life without them before now.
Pennies, that is.
This week the Royal Canadian Mint dropped the penny; they’ve officially started phasing out Canada’s smallest denomination coin because it cost a lot to make and wasn’t worth much. Is our own United States version of the one-cent piece in danger of a similar ignominious fate?
If you consider all of the positive attention that Abe Lincoln has been receiving recently, it might seem a bit churlish to be considering discontinuing the coin that bears his profile, but the idea of eliminating one-cent currency is not a new one, and the recent Canadian decision may yet reignite the U.S debate over the value of keeping our penny in circulation.
Back in 2002, former Arizona Representative Jim Kolbe sponsored the Legal Tender Modernization Act, which would have stopped production of the U.S. cent piece. In 2006, Kolbe introduced the Currency Overhaul for an Industrious Nation (COIN) Act, which would have rounded cash transactions to the nearest five cents, effectively removing the penny from circulation by allowing it to gradually fall out of use. Yet both of these bills failed utterly, because an overwhelming number of Americans preferred to keep the penny.
Did you know that it’s been 156 years since the United States discontinued its half-cent coin, which was one of the first and the smallest denomination of United States coins ever minted? Of course, in 1793 when our Republic was still young, the average working man only earned about a dollar day, so half-cent coins had genuine buying power.
That half-cent, made entirely of copper and about the size of today’s quarter was in use for 60 years. Yet by 1854, Mint Director James Snowden was griping that, "People will not take the trouble to make a cent with two pieces of money,” and the decision was made to cease production. Higher copper prices and increased labor costs had made the half-cent coin impractical to mint.
A not dissimilar situation exists with our penny today. In 2012, the U.S. Mint claimed that it cost two cents to make a penny, or double the circulating value (the unit cost for producing a nickel is also double its face value, or 10.09 cents, by the way). A decline in metal prices and a reduction in plant expenses in 2012 meant that the cost to produce the penny had actually dropped since the previous year, when it was 2.4 cents.
But most Americans don’t seem very concerned that their small change costs more to make than it’s worth. In 2008 alone, 5.4 billion pennies were produced. That's more than twice the number of quarters minted and five times as many dimes, thus the Lincoln penny accounts for roughly half of all coins minted within a year. Even if the value of the metal was taken out of today’s equation, the cost to mint a penny remains more than its face value. Acting Director of the United States Mint Richard A. Peterson has stated, "If the metal for the penny were free, we would still exceed one cent."
This is where the discussion ends for most anti-penny people, but considering the cost of penny production alone ignores the fact that our higher denomination circulating coins cost far less than their face value to produce (a dollar coin, for example, costs only about twenty cents to make), and that difference more than offsets any losses in producing pennies, or nickels for that matter.
A year ago, the Obama administration asked Congress for permission to change the mix of metal that goes to make pennies and nickels. If the U.S. Mint began making these coins out of more cost-effective metals the argument over production costs could be almost eliminated. But there are still production costs, and finding a cheaper alternative is not as easy as it sounds, plus the company that sells zinc penny blanks to the U.S. Mint is not over the moon about the idea of such a change.
Then there’s the debate over whether prices would rise or fall after the penny’s potential demise. Pro-penny folks claim that retailers would raise prices across the board as a result. Anti-penny folks claim that the rounding up of prices necessitated by the elimination of the penny wouldn’t really matter very much in the long run.
The Citizens to Retire the Penny website even suggests that retailers “might choose to round a 99-cent item down to 95 cents to keep the price less than $1.” (Does this sound like your local retail establishment? No, not mine, either.) And if we discard the penny due to high costs, shouldn’t we also, for the same reasons, discard the nickel? And are we really ready to be nickel-free Americans?
The reality is that only our Federal Government can decide whether or not the penny will ultimately survive. Even a host of economic, practical and nostalgic arguments for continuing its production may not, at the end of the day, keep the penny from becoming another piece of ancient history, valuable only to collectors or historians.
Of course, that’s just my two cents.