Turn out the contents of your pockets after a day out and about and chances are you'll leave a fair quantity of coin change spinning across your dresser top. Options for your spare change are limited: laundry with the quarters, maybe save up for a pack of gum with the dimes and nickels, but how about the pennies? You could send them to the limbo of the change jar, or perhaps guiltily slide them into the trash, but you may want to consider the matter in greater depth. As it turns out, our least valuable currency may be costing the taxpayer a pretty penny.
According to the U.S. Mint, the 6.6 billion pennies produced in the 2007 fiscal year netted a $31 million net loss. The loss stems from the high price of the zinc and copper used to make the penny and the distribution costs of bringing massive quantities of high-weight, low-value product from the factory to the pocket. In fact, it costs 1.67 cents to make and distribute one penny.
The low value of the penny is yet another problem. Taking inflation into account, today's penny is the most worthless unit of currency in U.S. history, so worthless that a majority of Americans horde them instead of spending them. That change jar may be doing you more harm than good in the long run. Uncle Sam keeps pumping more pennies into the market to compensate for the ones in your piggy bank that will never get to the bank no matter how many times you promise yourself you'll take them there.
In addition to the tangible monetary disadvantages of penny production, the time spent processing them in day-to-day commercial transactions outweighs their inherent value. Economists argue that the time required to fumble with the coins or obtain them from banks to make change is not worth the potential reward of a few cents. They estimate the opportunity-cost of such transactions to be anywhere between 300 million and 1 billion dollars annually, assuming businesses have more productive things to do with the extra time.
As a result of this widespread criticism, a movement against the penny has developed that demands retailers round off their prices to the nearest five-cent mark and the U.S. mint cease its production of one-cent coins. Though economists and market analysts roundly support the movement, legislators are largely indifferent.
In 2002, Representative Jim Kolbe (R-AZ) gave common sense legislation a shot, introducing the Legal Tender Modernization Act. The bill would have halted penny production permanently but bill failed to make it out of committee for a vote. A follow-up attempt in 2006 proved equally futile. His adversary was government waste, and he was losing.
Evidently, the penny has its backers. And those backers killed Kolbe's bills. Penny supporters claim that ceasing penny production would hurt the consumer, as retailers would invariably round their prices up rather than down. They also content that elimination of the penny would shift demand onto the nickel, which also loses money, having handed the U.S. Mint $68 million in net losses for the 2007 fiscal year.
The supporters seem to have the upper hand when it comes to popular opinion. A 2006 CoinStar poll found that two thirds of Americans wanted to keep their pennies (even if they never used them).
When it comes down to it, the penny debate may be politics as usual. A prominent voice in the pro-penny camp, Citizens for Common Cents, is funded largely by penny distributors and the zinc industry. On the other side of the coin, Rep. Kolbe's intended overthrow of the penny may have been influenced somewhat by the healthy copper production of his home state, which would welcome an increase in production of the copper-heavy nickel. Until the metals lobbyists throw in the towel, the waste generated by coin production may be the unfortunate but unavoidable byproduct of life in a cash economy, ensuring that the taxpayer suffers the effects whether or not it makes any sense.
By Django Gold