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Monday, February 23, 2009

1.7 ¢ for Your Thoughts

Ken Kerr Bio

We recently celebrated the 200Th birthday of our nation's greatest president, Abraham Lincoln. To commemorate the occasion, the US Mint released new pennies with four new designs on the reverse showing important scenes from Lincoln's life. It's a nice sentiment—only it's 100 years too late.

It is now time to eliminate the penny.

As of last March, it cost about 1.7 cents in labor and materials to make a penny. Let's say the average wage in the U.S. is about $17 per hour. If so, it takes about two seconds to earn one cent. Furthermore, if it takes only two seconds extra for a cash transaction that uses a penny, the cost of time wasted in the U.S. per person is about $3.65 annually. The cost for all Americans combined is about $1 billion.

Nothing takes a penny anymore—not gumball machines, not parking meters, not toll booths. Most Americans seeing a penny on the ground will not even bother to pick it up. It will take more than two seconds and they will be losing money. In fact, there has never been a coin in the US worth as little as today's penny.

As of 2007, Due to inflation, a nickel is worth approximately what a penny was as recently as 1972. In 1857, the United States discontinued the half-cent coin as no longer viable, and it had a 2008-equivalent buying power 13¢. That made the new smallest coin the penny, which (do the math) had a 2008-equivalent buying power of 26¢--the lowest denomination coin had the value of more than today's quarter. Now that's a pretty penny!

I'm not trying to be a penny pincher. I think I am being reasonable here—I am only saying, "Let's get rid of the penny." But while we are at it, let's look at the nickel.

Eliminating the penny would create a huge demand for nickels, which are already produced at a loss. The nickel has not been worth a nickel since 1974, and it now costs over a 10¢ to make one. So, maybe we should make the penny the new nickel and stop making nickels. The economist François R. Velde has suggested such a plan and estimated that the change would cause minor monetary inflation of $5.6 billion. That's just a couple-of-year's bonuses for banking and financial executives. Since we are losing as much as $40 million a year in production costs and $1 billion in productivity, we'd be turning a profit in 5 years. I don't expect to see that kind of performance from my TIAA-Cref account anytime soon.

There are sentimental reasons to keep losing $1.04 billion in bad-coin policy each year: we love Lincoln and we owe it to him; if we eliminate the nickel, what happens to Jefferson? As you may suspect, I have answers.

Lincoln is still on the $5-bill. And, if we eliminate the nickel, Lincoln's penny will still survive but be worth 5¢. So, what about Jefferson? He's on the $2-bill. While we are overhauling our currency, let's eliminate the $1-bill (Washington can stay on the quarter), bring back the $2-bill (which costs 4¢ to make) and use the golden $1 coin (which costs about 10¢ to make). Our greatest presidents: Washington, Jefferson, and Lincoln keep their honored place in American currency and we save money in the federal budget. Everybody's happy; everybody wins. Let's not be "penny wise and pound foolish."

Finally, the dime has not been worth a dime since 1980, and the quarter fell below its face value in 2007. But for now, it's one step at a time. I say we go for it—in for a penny in for a pound! If I have it my way, we'll all be saying, "A penny saved is a nickel earned."

Well, it's just my two cents, but I think I may have just figured out how to get us out of this financial crisis.


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Anonymous said...

Just my two cents - but why not a 2 cent coin then...? If a penny costs 1.7 cents to make, and after all, historically, we had 2 cent coins...

emilyeffinconrad said...

hear hear!