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Tuesday, April 3, 2012

Moneybox: No Pennies for Your Thoughts

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Moneybox
No Pennies for Your Thoughts
The United States should follow Canada's lead and ditch one-cent coins.
By Matthew Yglesias
Posted Tuesday, Apr 03, 2012, at 05:10 PM ET

One United States dollar is currently worth almost exactly 99 Canadian cents. It won't be long, though, before it will be impossible to put 99 cents in your pocket north of the border. That's because Canada is poised to implement a longtime dream of American budget wonks (and Aaron Sorkin) and withdraw the penny from circulation.

The basic problem with pennies is that they cost a lot of money for the government to make. Normally, minting coins and printing bills is a profitable undertaking for a government running a fiat currency. Citizens use money to conduct transactions with one another, and ultimately to pay taxes. But as long as that money is sitting around in pockets and sock drawers, it's as if the government has received an interest-free loan. After all, the resources needed to produce a coin or a piece of paper with Alexander Hamilton's picture on it are pretty trivial. But in the case of the penny, the problem for the government is that the actual value of the thing is trivial as well.

Since 1900, the price level in the United States has increased 25-fold—in other words, a penny in 1900 had about the same real purchasing power as a quarter does today. Even today there's not much you can buy for 25 cents, but put a few quarters together and you've got yourself some time in a parking space, a load of laundry, or a soda from a vending ...

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