It’s a discussion that pops up from time to time: does it make sense (cents?) to stop production of the penny. The one-cent coin is virtually worthless, for most intents and purposes, so why do we keep making it?
Canadians might remember the story that came out about a week ago, saying that Finance Minister Jim Flaherty is still apprehensive about scrapping the penny. He wants to keep it around, even though it actually costs about 1.5 cents for the Royal Canadian Mint to produce a single one-cent penny.
We’re talking about the Canadian penny, but it could just as easily apply to American money too. I’d argue that we don’t need the penny. It costs too much to make, too many get “lost” in circulation, and it just ends up in forgotten penny jars and in between couch cushions.
The thing is that the elimination of the physical penny would only have an impact on cash transactions. When you pay online or use a credit card in a store, you still pay the actual amount. If the total is $12.97 at the dollar store, you pay $12.97 on your MasterCard.
If you’re paying cash, though, you’d then fork out $12.95. If the total were $12.98, you’d then round up to $13.00. As an aggregate, the retailer would neither gain nor lose money, as everything would average out. It’s the same with the fractions of a penny that happen with interest, tax, gas prices, and so forth. I’d rather the actual prices get rounded to the nearest nickel or dime officially, but this system is fine.
And it’s a system that, as far as I know, works swimmingly in Europe too. Round up or down for cash transactions, charge the actual amount when paying with plastic. We might have to bid adieu to penny candy, but I think that ship has long-since sailed.
The nightmares that would be required for rounding up and down would be so costly. They would much outweigh the extra cost of minting new coins. Just the suggestion you give for 12.97 versus 12.98 is unthinkable in the amount of time, effort and coding it would take.
The code written to round, do taxes, etc., is not easy code, especially given that you have now made it two types of transaction CC versus cash which adds lines to code. There have been cases that I had to learn in college programming classes about Walmart owing the government millions in back taxes because of a coding error in the POS system due to improper rounding.
The only real logical solution to removing the penny from circulation would be to only allow transactions that end with 0, 5, 10 etc. divisible by 5 or 10. But even with that, you would then have to change all the sales tax structures, government taxes that add 1 percent for roads, schools and other projects to the sales tax. We are just moving the nightmare from one place to another.
It is more complicated than just saying lets round it at a certain place because the coin is so embedded in our society. There was an article yesterday that stated that the US Treasury did not print any $1.00 bills last year because of new technology making the bills last twice as long and because the use of credit cards is made the use of the bills decline. But that doesn’t mean we can stop printing money completely because there was a bigger demand for $100.00 bills; while the math shows that at the current rate of paper money usage we will still be using it 200 years from now. That takes in to consideration the increase in CC usage, and decline in paper money usage.
So, will we every not use them in circulation? No, we will still use all paper money for a long time. Will we stop producing them, yes because technology will let us keep the already printed bills and coins in circulation for an extremely longer amount of time.
I think my reply was almost as long as the post 🙂
nice comment there Mr. Ray
Hi Ray I think that’s a good comment. Thanks for your complement.