Tuesday, March 18, 2008
A college friend asked for my take on the penny. I’m one of those people that practically throws them away, although I once sold 17 lbs of Canadian pennies on Ebay for my father-in-law (that’s a different story.) Currently it cost about 1.7 cents to make a 1 cent penny (link). In part the rising cost is due to increasing cost of the materials used to make them. It is currently illegal to melt pennies for profit.
So if millions of dollars could be saved by getting rid of the penny, why not do it. First as the US Treasury Secretary points out “it’s not politically doable” since people have an attachment to pennies. I agree a smart move may be to make pennies out of cheaper metals.
Here is another thought. It might be a good idea at some point to get rid of the penny. Now is not the time. Because if we got rid of the penny there would be a cost to converting prices to the nearest nickel. Restaurants would have to print new menus and all super market products would have to be relabeled. There would be a cost to changing these prices (economist call this cost menu costs). When most of Western Europe converted to the Euro, the inflation effects were small 0.12 - 0.29 % (according to this paper). Given the current state of the US economy and other possible inflationary problems, if we are going to do away with the penny let’s wait until a good economic time.