What is America’s obsession with the penny? Quoting a study from 1976, the US Mint suggested that the humble penny is the “most widely used denomination in circulation.” Even more bizarre, the one cent coin requires nearly 2.5 cents in raw materials. A penny saved is now a penny and half of your tax dollars down the drain. As the 2011 Annual Report points out, making pennies cost the US Mint 60.2 million last year alone. Nor is this a new problem. In 1982, pennies went from heavily copper to largely zinc to reduce costs. However, higher zinc prices and the diminishing power of the dollar have sparked this trend anew. While the Obama administration debates a more thrifty penny alchemy (anyone for steelies?), the best solution is to reduce or even eliminate the nearly worthless coin. It would not only save costs but may also jump start America’s mobile payment industry.
The penny is one of the smallest value coins in the developed world. Living in Senegal, I very rarely encountered coins below 25 francs (about five cents). However according the Central Bank of West Africa, their coins start as small as one franc or about a fifth of a cent. These coins make more sense in West Africa where purchasing power is far greater for similar services. The I took the bus downtown for a total of 20 cents: a similar trip on the El would be an order of magnitude larger. Developed countries require larger coinage and several have already stopped minting their versions of the penny:
Even our Canadian neighbors have decided to call an end to their penny, and their production was far less burdensome (though still unprofitable) than our own.
Finally, the world is turning towards payment systems that don’t require coins at all. While many have long used checks, credit cards, and debit cards, forms of mobile payment (cell phone-based payments for small purchases) are gaining traction. Currently, the US is less active in this arena compared to much of the developing world (South Africa, Kenya, and the Phillipines are particularly active). Having a larger market at home among the unbanked would nudge American companies towards this growing field – providing jobs and tax dollars along the way. Soon everyone would have a penny-free alternative for every transaction. While choice is preferable, spending millions of taxpayer dollars each year is certainly a valid concern, and when combined with the potential of helping American industry, the choice is clear. Drop the penny.
For you Lincoln buffs, remember that removing the penny will not end the use of Abraham’s visage on American currency. Just take a look at any five dollar bill! As an added benefit, such bills cost only 8 cents to produce!