The lowly penny has some foes, and some friends
Critics say they’re inefficient and a drain on the economy. Democratic presidential hopeful Sen. Barack Obama said he doesn’t know why they’re still around. Treasury Secretary Henry Paulson hopes to find a way to get rid of them. New Zealand and Australia have abolished them and Canada is now seriously considering doing the same.
But in the United States, the penny endures.
Why? The coins now cost more to produce than they are actually worth. Penny abolitionists say continued production is due solely to the influence of the mineral lobbies that supply the zinc used to mint the coin. They drain wages by slowing lines at the cashier and they are effectively worthless as currency.
But, perhaps out of pity for the poor penny, some have rallied in support of it. The organization Americans for Common Cents claims that dropping the coin would lead to a price increase across the board because without one-cent coins, prices would be unfairly rounded up to the nickel. They argue that the penny has strong national sentimental value for U.S. citizens, and is a part of their history. They say that removing hard currency allows credit card companies to dictate monetary policy.
In late February, the Associated Press reported that Treasury Secretary Henry Paulson said eliminating the penny made sense, saying, “The penny is worth less than any other currency.”
When Sen. Obama held a town hall meeting in Greensburg, Pa., on March 28, the self-proclaimed “candidate for change” was asked if he would discontinue the coin. He reportedly answered, “We have been trying to eliminate the penny for quite some time--it always comes back.”
“I will seriously consider eliminating the penny as long as we find another place for Lincoln to land,” the senator from Illinois continued.
Three days later an article appeared in the New Yorker magazine asserting that the cost of producing a one-cent coin was roughly 1.7 cents. The Mint then sells about 7 billion pennies to the Federal Reserve each year, leading to an annual Treasury deficit of about $50 million.
And on April 2, a member of the Canadian parliament from Winnipeg, Manitoba, introduced a bill to abolish that country’s cent, citing research that pennies were expensive to produce and unpopular among retailers.
But in the United States so far, the copper-colored currency has survived recent attempts against its tarnished existence. In 2001, and again in 2006, then-Rep. Jim Kolbe of Arizona introduced bills to the lower house of U.S. Congress aimed at eliminating the penny. Both failed to win support.
A lobbying group funded by zinc producers (today’s pennies are over 95 percent zinc) called Americans for Common Cents fought both bills. The value of the zinc alone, without labor costs, used in annual penny production is nearly $400 million.
“If you don’t have the penny, you round transactions to the nickel,” said Mark Weller, director of the lobbying group. This “rounding tax” means paying one or two cents more on some items.
“It seems small on an individual basis, but when taken in total it’s a vital part of the American economy,” Weller said.
One study estimates it will cost U.S. taxpayers several hundred million dollars annually.
But Jeff Gore calls this argument “hyperbole” used to keep the penny around. Gore, 30, is a postdoctoral fellow at MIT and the head of Citizens for Retiring the Penny.
“I don’t like that the zinc industry is trying to scare people,” he said. Divided up among U.S. citizens, such a rounding tax ends up costing only a couple of dollars per person per year. People already pay a price by leaving pennies scattered around their homes, he said, so the difference would be negligible.
On April 9, Gore appeared on the Comedy Central show “The Colbert Report” to defend his position.
“The biggest issue is lost time,” Gore said the day after his appearance. He cited a Walgreen’s study showing that every transaction involving pennies lasted two seconds longer than those involving only larger units of currency.
“Two seconds doesn’t seem like much—a couple of hours each year. But when it comes to wages across the U.S., it works out to something like $10 billion,” he said.
“From a rational standpoint, we should retire the penny.”
But changing U.S. currency is a difficult thing to do, requiring an act of Congress.
“The last real change in American currency was the elimination of the one-dollar gold coin in 1889,” said Robert Wilson Hoge, the curator of North American coins at the American Numismatic Society based in New York City.
“They also stopped producing silver dimes, quarters, and half-dollars in 1964, but they just changed the metal and kept the unit,” Hoge said.
Other countries have already cut their small coins, and the United States’ northern neighbor is considering doing the same, amid a similar debate.
New Zealand and Australia eliminated their one- and two-cent coins in 1990 and 1991 respectively, with New Zealand going further in 2006 when it demonetized its five-cent coin. These initiatives prompted a Canadian politician to consider making the change in his country.
“I reconnected with a friend from New Zealand,” said Pat Martin, a Canadian member of parliament from the New Democratic Party, over the phone from his office in Ottawa.
“She told me how simple the elimination was. Life as they knew it did not come to an end.”
It took eight months for Martin to write the proposed legislation, which was introduced as a “private member’s bill,” meaning it wasn’t official party policy. Such efforts usually have a short lifespan.
“But it took off,” Martin said. The finance committee will investigate the logic of the proposal and then consider presenting a final draft to parliament.
“The government sees it as safe political ground,” Martin said. The only real objection, he suspects, may come from the Royal Canadian Mint, where cutting the currency may lead to a loss of jobs. According to the Mint’s 2007 annual report, it employed 773 people and produced a little over 1.2 billion pennies. The main facility producing Canadian currency for circulation is located in Pat Martin’s city of Winnipeg.
Officially, the Mint has no comment on the bill.
“The Mint remains neutral,” said Alexandre Reeves , the manager of communications for the Canadian coin manufacturer.
“We take our orders from the government of Canada.”