One hundred and sixty years ago, the United States made a bold and fundamental alteration to the structure of its currency by eliminating the half-cent. Ever since, the basic denominations with which we exchange goods and services have been more or less constant. Meanwhile, inflation has drastically altered purchasing power to the point that today’s dime has the same purchasing power that the half-cent did at the time of its elimination. The time has come to change America’s currency once again, this time by eliminating the penny and replacing the dollar bill with a dollar coin. However, there is a discrepancy between what is economically advisable and what is politically feasible. Due to powerful special interests and general apathy regarding currency reform, it may be a long time before any true change occurs. A Pretty Penny: Economics of the One Cent Coin
It costs 2.4 cents to manufacture each penny. The cost of manufacturing pennies is compounded by the costs associated with their use. Jeff Gore, assistant professor of physics at MIT and founder of Americans to Retire the Penny, told the HPR, “the amount of time we spend handling pennies is a much more significant issue—two and a half seconds on average per cash transaction. It’s more than a billion dollars wasted.” Indeed, various economic analyses have demonstrated that the time wasted handling, counting, and transporting pennies creates enough cumulative inefficiencies to have a tangible economic impact. While this effect is very small relative to the United States’ $14 trillion economy, that does not dissuade activists like Gore. As he explained, “it’s not that it’s the most important problem in the world, but it’s one of the easiest problems to solve. Most problems are hard. … All we have to do [to eliminate the penny] is pass an Act of Congress.”
The only notable pro-penny organization, Americans for Common Cents, details three core economic arguments in favor of the penny: that eliminating the penny will increase government spending by increasing production of the even more wasteful nickel, that eliminating the penny would hurt charities, and that price rounding would hurt consumers. None of these arguments stand up to extensive scrutiny. There is no reason to assume that more nickels would be needed to replace the penny. Furthermore, the fact that the nickel is even more inefficient than the penny suggests that the inefficiencies of the nickel should also be addressed. It certainly does not mean that both problems should be ignored.
Meanwhile, in countries such as Canada that have eliminated the penny, government initiatives encouraging the donation of the remaining pennies in the economy actually increased many charities’ profits substantially. Moreover, some charity CEOs are optimistic that a transition to nickels as the lowest value currency denomination would increase total donations and decrease some of the hassle of transportation. Lastly, price rounding, which would occur after the calculation of sales taxes, would increase prices about half the time and decrease them about half the time. Consumers would see little or no change in their total expenditures. Economics of the Dollar Bill A dollar coin vault in Washington, D.C.
Unlike the penny, the dollar bill costs far less to make than it is actually worth: a mere 5.4 cents per bill. Yet the dollar bill also poses serious economic issues. Smaller denominations change hands far more frequently than their larger counterparts, so the typical dollar bill undergoes massive wear and tear. This means that dollar bills fall out of circulation very quickly and therefore have to be printed in large quantities every year. Dollar coins, while more expensive to mint, more than make up for their cost through their durability. As of 2013, the Government Accountability Office estimates that switching to dollar coins would save $4.3 billion over the next 30 years. Calculations from earlier years, which currency-reform advocates suggest are more accurate, report that the switch would save as much as half a billion dollars per year.
As with the penny, some dispute the economics behind eliminating the dollar bill, arguing that people would lose the coins frequently and simply refuse to use them. Yet again, the historical record suggests opponents of reform are wrong. Canada and much of Europe stopped printing their lowest denominations of paper currency in the 1980s and replaced them with coins, without any tangible backlash. The coins are physically larger than smaller denominations, and since they are more valuable, people treat them with more care. Politics
At first, one might think that the strong economic case for currency reform would intersect conveniently with political potential for bipartisan agreement. The Tea Party is always looking for ways to cut spending, while President Obama has explicitly criticized the penny: “Anytime we’re spending money on something that people don’t actually use … we should probably change.” Nevertheless, there has been no serious effort to modernize our currency since 2006, and previous efforts gained little traction in Congress. The political reason for this is clear: vigorous lobbying on the part of those who would stand to suffer from currency reform.
Major zinc mining companies fund groups that defend the penny’s usefulness to society. Interestingly, Americans for Common Cents’ Executive Director, Mark Weller, is also a partner at the lobbying firm SNR Denton. One of Weller’s clients is Jarden Zinc, which has paid Denton between $140,000 and $340,000 every year since 2010. Similarly, Michael J. Brown, former spokesman for Americans for Common Cents, informed a congressional committee that his work with Americans for Common Cents had been “for the zinc industry.”
Meanwhile, the principal opponent of the dollar coin is the Federal Reserve. The Fed sells all of the currency that it prints to banks, generating 94.6 cents of profit for every dollar bill entered into circulation. By contrast, buying and selling coins generates no profit for the Fed. Thus, the elimination of the dollar bill would cost the Fed dearly.
However, there is a second problem that transcends lobbyists: general apathy and resistance to change. Former Rep. Jim Kolbe (R-Ariz.), a champion of currency reform for two decades in Congress and current chair of the Dollar Coin Alliance, told the HPR that opposition from the Federal Reserve and the zinc industry was rivaled by “inertia,” because “people just don’t like changing their currency.” Still, while advocates for reform remain concerned about apathy, recent polling suggests Americans are at least open to the idea of currency reform. Rasmussen Reports recently found that only 31 percent of Americans oppose the elimination of the penny, while 49 percent support it. What’s Next?
Currency reform activists like Gore and Kolbe seem to acknowledge that the short-term prospects for reform look bleak. Gore noted that it will take “something concrete” to inspire change, and Kolbe bluntly acknowledged that “there doesn’t seem to be enough momentum yet [to implement currency reform].” Yet they remain hopeful for the future. Kolbe predicted that “it will happen eventually, as the inevitable march of inflation makes the penny more and more worthless and the paper dollar less and less valuable.”
It has been 160 years since the United States ended production of the half-cent, and it would be foolish to speculate as to exactly when another such change will occur. However, one thing is certain: with so many powerful interests profiting off the status quo and so many Americans indifferent to the issue, it will take a legitimate, new movement for anything to change.
