Small change

2008-04-06

in Economics, Law, Politics

The New Yorker has an interesting article on American coinage. It focuses particularly on the question of what should be done with small denomination coins, given the ever-higher prices of metals like zinc, copper, and nickel.

It also includes a lot of interesting asides: such as how the American nickel was designed to have a mass of one gram per cent of value, at a time when the American government was flirting with the metric system. The article also features an amusing example of how industry sets us shell groups of ‘concerned citizens’ who are keen to block changes to the law that would be disadvantageous to them. In this case, a major supplier of zinc to the U.S. Mint founded Americans for Common Cents in order to resist moves to eliminate the diminutive coin.

Personally, I think that scrapping the penny is an act long overdue. For years now, I have been picking them out of the change I get back from purchases in order to reduce the mass of stuff being ferried about in my pockets. Even if every price gets increased to the next five cent mark, the benefits from being rid of the bothersome coin will be more substantial.

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{ 10 comments… read them below or add one }

Tristan April 6, 2008 at 7:14 pm

I love Pennys.

Rather than get rid of our lowest valued coin, Why don’t we replace our currenty with a new one, in which the penny is equivalent to ten cents of old currenty, a dime to a dollar, a dollar to ten, and ten to a hundred. The coinage would have to be different, obviously, but France managed it in 1960, when they revalued the new franc at a hundred existing Francs.

Milan April 6, 2008 at 7:18 pm

What would that accomplish? It would decrease apparent prices tenfold and render all existing currency confusing and in need of replacement. It also would not prevent merchants from using the price change opportunity to change prices.

A much better idea is just to progressively remove the penny from circulation. Whenever a bank takes one in, they could send it to the mint and get a refund in another denomination. The pennies could then be melted down and the metal used for something better.

Milan April 6, 2008 at 7:19 pm

Changing the value of money-pieces by an order of magnitude causes other problems. The security features in notes and coins are installed in relation to their face value. Making a $10 worth $1 would make it over-protected, relative to its value. Likewise, making it worth $100 would make it under-protected.

Scrapping the penny is much more sensible.

Sarah April 6, 2008 at 8:26 pm

Perhaps not right now, though? In an ailing economy sliding into recession & many poor people likely to lose their homes, price inflation (particularly on cheaper goods) seems unwise.

Anon April 6, 2008 at 8:39 pm

“In that 2001 episode of “The West Wing,” the Sam Seaborn character states that the only coin-operated machines that accept pennies anymore (apart from automated tollbooths on highways in Illinois) are “those coin-wrapping machines people buy to get rid of pennies.””

“Coinstar charges most of its customers 8.9 per cent of any amount they feed into a machine. The fact that consumers happily pay this considerable fee suggests that they wouldn’t be bothered by the vastly smaller penalty that rounding to the nearest nickel might entail. Of course, eliminating cents would also eliminate the middleman—in this case Coinstar, which annually processes about forty billion coins, more than half of which are pennies. Not surprisingly, therefore, Coinstar has been an advocate of preserving pennies”

This article does make some good points.

Emily Horn April 6, 2008 at 10:11 pm

In Australia they’ve done away with the penny already. I never noticed the difference, and it saves the amount of change you carry around.They also have the *real* price of things labeled on them. So if you go to buy a salad and it is 4.50, you don’t need to calculate the tax on top of it. It’s a ridiculously sensible way of getting things done.

Milan April 6, 2008 at 10:15 pm

So if you go to buy a salad and it is 4.50, you don’t need to calculate the tax on top of it. It’s a ridiculously sensible way of getting things done.

That’s the way it is at liquor stores here, but nowhere else. It is also that way in the UK.

I would be very pleased if shops had to include GST and provincial tax in the posted prices.

. April 7, 2008 at 10:22 am

Coins of the New Zealand dollar

On 11 November 2004, the Reserve Bank of New Zealand announced that it proposed to take the 5¢ coin out of circulation and to make the existing 50, 20 and 10 cent coins smaller and use plated steel to make them lighter. The reasons given were:

1. The 5¢ coin is now worth a third what a cent was worth back in 1967, when New Zealand decimalised its currency.
2. Surveys had found that 50, 20 and 10 cent coins were too large and could not be easily carried in large quantities. The original 50c coin, with a diameter of 3.2 centimetres, was one of the largest coins in circulation worldwide.
3. The size of the 10¢ piece was too close to that of the dollar – so close, in fact, that it has been possible on occasion to put two 10c pieces in a parking meter together and receive a dollar’s worth of parking time. (Naturally, this can also backfire and jam the meter.)
4. The prices of copper and nickel used to mint the old coins were high and rising steeply.

After a three-month public submission period that ended on 4 February 2005, the Reserve Bank announced on 31 March it would go ahead with the proposed changes. The changeover period started on 31 July 2006, with the old coins usable up until 31 October 2006. The older 50, 20, 10 and 5 cent pieces are now no longer legal tender, but are still redeemable at the Reserve Bank.

. April 7, 2008 at 12:00 pm

Bank’s penny thoughts
Federal draft report says, unofficially, inflationary effect would be negligible

Feb 17, 2007 04:30 AM

Eliminating the penny would cause little or no inflationary effect, and in some cases might cause prices to fall, says a draft report written for the Bank of Canada.

Prices frequently end in a “9” to create the perception that, for example, $9.99 is much cheaper than $10, says the draft. If the penny were ditched, merchants might post the price at $9.95, saving a customer four cents. “This would cause the level of the (Consumer Price Index) to fall,” the draft suggests.

Anon April 8, 2008 at 11:33 am

“There is nothing more difficult to take in hand,” Machiavelli wrote in The Prince, “than to take the lead in the introduction of a new order of things … the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”

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