When someone offers you a penny for your thoughts, tell them that your thought is to end the penny.
“Provides for a comprehensive review of U.S. currency production and use, including developing alternative options for the penny and the nickel.”
– FY 2015 US Government Budget, Page 124
The government seems to be catching on. Obama’s 2015 Budget called for the Treasury Department to conduct a review of the currency production and use. The line item is a fancy way to say, “Stop minting pennies and nickels.”
The coverage in the media of the item quickly dissipated, but the drivers of the discussion are only getting worse. The coins are very expensive to produce and inflation has eroded the buyer power of these coins to a point where they no longer promote commerce. At the same time, coins as a whole are losing ground to electronic currency.
The coverage of this issue really focuses on the wrong point. Today, the discussion largely centers on how much profit or loss is made by the government in producing these coins. For example, this article claims that the taxpayers lost $105 million on pennies and nickels last year. This point would be relevant if the government were a currency trader. It isn’t.
Currency and coins should serve as a building block of the economy. These tools lift us out of a barter system by providing a universal translator between what I do for a living and what I want. I am willing to work for currency because I know that someone else will accept it. Currency creates tax revenue by expanding the economy.
The discussion needs to look at the broader revenue to evaluate whether these coins are sensible. We should think of coins as a cost of the economy, much like building a bridge across a river to promote commerce. The problem is that they are the new bridge to nowhere in a world of electronic currency.
It is difficult to say that the penny and nickel promote commerce. Today more and more people will not even accept pennies. No one is required to accept pennies in bulk. Tolls do not take pennies. Vending machines do not use them. The tooth fairy refuses to deliver them. They are basically an economic garnish.
If I were in the business of picking up pennies. I would have to pick-up 1 penny roughly every 5 seconds just to make minimum wage. The figure drops down to 1 every 2 seconds when one includes the cost of converting them into something useful.
The nickel is worth five times as much, but that is not saying much. The last time that the government discontinued a coin was in 1857 when it halted production of the half-penny, which at the time had more buying power than a dime has today.
The public discussion also ignores the societal cost. We really should be asking how much does the penny contribute to our economy versus the entire cost to produce them. In 2013, we produced 7 billion pennies. The cost to produce each penny is nearly $0.02 or more than $125 million for the annual production of pennies.
Ironically enough, supporters of the penny point to the poor as reason to keep the penny. Since this audience has less net-worth, the penny becomes more visible. The problem is that we are spending $125 million dollars to produce pennies when we are unable to fully fund school lunches. Pennies are a strange way to help anyone.
Production costs are only a portion of the cost to use these coins. Business must legally accept these coins, which means counting and return them to the bank. Mining is an environmental hazard. Pennies and nickels must be delivered via armored car to every small town in the country. To defend the penny, you really ought to know the carbon footprint of a 25 ton truck carrying another ton of coins.
It isn’t just the penny which has the problem of purpose. FedSmith has reported on the efforts of Senator David Vitter to end production of the presidential dollar coin. It is probable that the government could ‘make’ money on the coins, if someone would actually pay a dollar for them. But they won’t.
“There are currently 1.252 billion unwanted coins and the GAO says that will expand to 2 billion soon, forcing the Federal Reserve Bank of Dallas to add more storage space for the coins at a cost of $650,000. Additionally, the Federal Reserve would have to spend $3 million to hire armored truck contractors for moving the coins and spend an additional $1.4 million for pallets and renovation in buildings to expand storage.”
Decades ago, the penny served a vital role for kids, who would save their pennies to buy a treasure. It is time to acknowledge that these relics are a fond memory not much different than the horse and buggy.
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