The Problem Of The Penny

Posted by Allison on 4 April 2009, 10:20

You might already be aware that Americans have a bit of an aversion against the single dollar coin, preferring the 'single' or the 'greenback' banknote instead.

But it seems there is another debate going on in America involving money, and this one is at the smallest end of the monetary scale.  The humble penny – the popular term among Americans for the officially named one cent coin – is in the middle of a debate over whether it should still be around or not.

Since many countries have some kind of coin that is equal to the penny in value, this is a debate that could soon start to rage in other countries as well.  But for now America is embroiled in the debate and it doesn't show any signs of letting up.

So how did this debate start up in the first place?  The main issue of contention seems to be that the penny really isn't worth bothering about.  You can't buy anything for a penny any more, and the ever present issue of inflation continually drives up prices as time goes on – which happens regardless of what the economy seems to be doing.  Have you ever noticed how prices go up at certain times when raw materials become more expensive to buy?  If you have, you have probably also noticed that those prices never seem to go back down again, even when the price of manufacturing them goes down.

Most people have an aversion to carrying around the smallest denomination coin in their own currency, whatever that may be, simply because there just isn't a lot of use for it.  This is the main argument towards getting rid of the penny in America – it just gets in the way.  One wonders what percentage of the one cent coins in circulation in America aren't actually in circulation at all; they are probably sitting in children's piggy banks and in various types of pots and jars in kitchens and on shelves in many American homes.

Of course you do get a small percentage of people who seem hellbent on trying to get rid of the things; they are the people who stand in line at the checkout, counting out pennies to pay for something that costs less than a dollar in the first place.  It's one sure way to get rid of them though.

So who is in favour of getting rid of them and who wants them to stay?

Probably the biggest group of people who don't want to see them go are the numerous different charities in existence in America.  Think about it for a moment – whenever you see someone collecting for charity in your own country, what coins do you throw into the collection pot or bucket when you go and make a donation?

The chances are you see it as a twofold opportunity.  Firstly you will be able to do something good and give a little money away – and secondly the money you do part with will be all that loose change weighing down your pockets.  And it's the smallest denominations of coin which get thrown into that bucket every time.

If the American one cent coin did disappear it would have a huge effect on the size of the charity coffers all over America.  People may of course start throwing in the coin which would then be the smallest one in circulation – the five cent coin – but would they throw in so many or would the total amount of donations take a nosedive?  You almost don't want to find out in case the charities suffer as a result.

But there is also a more sentimental side to most Americans, as the majority of people don't want to see the back of it, however annoying they might find it and however many of the things they may have stashed away in that old piggy bank in the kitchen.  The penny has been around for a long time, and getting rid of it would be like getting rid of a huge part of American history and that's not something which the American public are quite ready to do.

One of the biggest problems associated with keeping the one cent coin is purely one of cost.  It costs more than a cent to make a cent, so you can see instantly that this coin of little value and little real use is costing the government a lot of money to keep around.  But of course it's not as simple as just deciding to get rid of it – as we have already seen there is a lot to consider.  The cost of production alone isn't enough to warrant its demise.

Now let's take a look at prices and how they might change if the penny was no more.  The loss of the penny in America would be more profound than the loss of the penny in Britain, since the next denomination of coin that we have is the two pence coin; Americans would have the five cent coin as their next smallest.

You might be wondering why that matters, but when it comes to pricing it does matter a lot.

Let's say we have a bottle of drink which is 99 cents.  In America they would have to either keep the price the same, paying a dollar without getting any change, or the price would simply be pushed up to a dollar.  In Britain we could still have the price as 99 pence, because that two pence coin would allow us to pay the correct amount every time.  So prices would go up (in some cases they could quite easily go down, but what are the chances of that happening?). 

Only time will tell whether or not Americans will make their minds up and do away with the thing or keep it going for the foreseeable future.  It has been done in plenty of other countries without much of a fanfare, but it could simply depend on the country as to how much of a history and relationship they have with their own currency.  It seems that the more history there is, the harder it is to let go of something; makes sense when you think about it.

It might be the case that inflation eventually does the work of making the decision for them, since as prices continue to rise the penny will have even less use than it does today.  It's a fact of life that all currencies eventually start getting rid of the smallest denominations of coins since they are no longer viable or useful.  In a similar vein larger denomination coins which have previously not existed are also sometimes brought in to provide more choices for the consumer when it comes to paying for goods.

One thing is certain though.  Americans seem to be largely split down the middle when it comes to their penny.  If you go online and search for some blogs which have made a mention of the penny problem, you'll find the comments posted in response to those blogs split pretty equally down the middle.  Some people who are in favour of getting rid of it have even admitted to throwing their pennies away because they are next to worthless and only get in the way when they hang around the house.

But given the current state of the dollar – which itself is struggling to stay with its head above water – the problem of the penny seems almost silly in comparison.  If it wasn't for the charities it might already have gone the way of so many other small value coins in history.  It might have survived into this century but the chances of it still being around at the turn of the next one are minimal.

It's not so much a case of if it will go, but when.