>It currently costs more than a penny to make a penny. This is mostly due to the rising cost of raw materials, especially zinc, which is about 98% of a penny’s weight.

Current estimates of how much it costs range from 1.2 to 1.7 cents to make, including materials, production, and delivery costs.

I’ve seen some people proposing eliminating the penny, and Jim Kolbe of Arizona as proposed having the mint come up with yet another formulation that would make it cheaper to produce, but I have a different idea that may work:

The mint should be allowed to charge its customers (really the Federal Reserve buys all the mint’s production, then sells it to member banks) at least what it costs to make coins.

That means that if it costs 1.6 cents to make a penny, then to buy 10,000 bagged pennies ($100 worth) should cost you $160. Banks would then be allowed to pass those costs onto final customers as they saw fit. They probably wouldn’t charge the average checking account customer 80 cents for a single roll of pennies, but the commercial customers that need ten dollars in pennies or more per day, would probably get charged a premium for pennies.

I think this would have two effects, both beneficial to the government’s goal of not losing money on making pennies.

1. Retail stores that are big penny users would be encouraged economically to figure out how to change their prices so it requires fewer pennies to make the transaction. Probably they would round the prices to the nearest nickel. The reduced demand for pennies should improve the situation for penny production.

2. When faced with penny prices from the mint at a 50-60% premium, banks may get creative with programs to encourage people to turn in their pennies. I can envision Coinstar waiving their 9% commission on coin counting, or banks offering 55 cents for a roll of pennies (a 10% return, not bad).

Overall, with inflation trending upwards under Federal Reserve guidance, the eventual elimination of the penny seems inevitable. For political reasons, we haven’t been able to get rid of it. We can experiment with cheaper and cheaper compositions (copper coated steel, zinc coated steel like during WWII, they minted some small number of aluminum cents back in the 1970s), or we can just start not losing money on minting cents.

I’d like to note that I made it through this entire post without resorting to a terrible pun like “It only makes cents” or “What a cents-ible proposal”. You’re welcome.


About perkinsms

I'm an engineer and father interested in transit, parking and economics.
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6 Responses to >Pennies

  1. Mark says:

    >I have YET to see a logical reason to retain the penny as a currency, or what meaningful harm to anyone (even homeless dudes who might like a few pennies) would be caused by its elimination.From http://en.wikipedia.org/wiki/Efforts_to_eliminate_the_penny_in_the_United_StatesHistorical precedents — There has never been a coin in circulation in the US worth as little as the penny is worth today. Due to inflation, as of 2007, a nickel is worth approximately what a penny was worth in 1972.[10] When the United States discontinued the half-cent coin in 1857, it had a 2008-equivalent buying power of 13¢.[11] After 1857, the new smallest coin was the cent, which had a 2008-equivalent buying power of 26¢. The nickel fell below that value in 1974; the dime fell below that value in 1980;[10] the quarter fell below that value in 2007.[12]

  2. Mark says:

    >The arguements in the wikipedia are all illogical:1. May affect some charitable causes — Some organizations rely on donations from the collection of pennies.Which ones? Anyway, they could then collect nickels or aluminum cans or all sorts of other things.2. Historical sentiment — The cent was one of the first coins authorized to be minted by the American government, and the first to be put into production.I don’t see how this meaningfully argues for retaining it. We got rid of the half-cent. Everyone who was around when the cent was first authorized is dead, so they shouldn’t care. We used to use pounds, but we somehow changed.3. Regional sentiment — Because the Penny depicts former President Abraham Lincoln, representatives of the State of Illinois (official nickname is “Land of Lincoln”) have been vocal in their opposition to the elimination of the penny.Wow. As an Illini myself, this sounds crazy. Besides being unimportant, he’s ALSO on the $5 bill!4. The zinc suppliers profits — The penny is 97.5% zinc and the removal of the penny would decrease profits of zinc suppliers.Ah, but it we made coins out of gold, the gold suppliers would profit! Or if we made them out of bubblegum, the bubblegum suppliers would profit! The ideal currency would be free to produce and made of cheap materials. (if, of course, counterfitting was impossible). Being made of rare, valuable stuff is a NEGATIVE, not a positive.

  3. Mark says:

    >If the gov had planned ahead, they could have tied removal of the penny to the ‘stimulus check’.Considering even non-tax-payers got something like 82c/day, that should pay for a huge number of roundings-to-the-nickel.Of course, the EU is extra dumb, since they created a currency, and then they included several coins that were -already- useless. They can’t even blame decades of inflation!

  4. Michael says:

    >I’m not saying that my proposal is preferable to penny elimination. For some reason, we’ve been unable to eliminate the penny politically. My proposal just eliminates the public costs of penny existence. If people really really like pennies, then they can purchase them at what they cost.

  5. Geoff says:

    >I don’t see how retail stores would figure out how to make prices use less pennies. The chief problem being taxes, unless stores want to roll taxes into the stated price of an item. Otherwise the overhead of trying to reduce penny usage would virtually impossible.

  6. Michael says:

    >They’d find the pre-tax price that resulted in a post-tax price being an even nickel. For example, an item priced at 98 cents is 1.06. But if you make the item 97 cents it works out fine.Another option would be to have a store policy that cash transactions are rounded to the nearest (lower?) nickel.

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