EclectEcon

I have long advocated that we get rid of the penny in Canada and the US. [see here, here, and here, for example].

I don't think the fact that the gubmnt earns negative seignorage on minting pennies provides a very strong argument for not using them. But that fact certainly adds to the case against having pennies (And, as I pointed out earlier, the negative seignorage that has made the news lately doesn't even take into account the distribution costs, which amount to several cents per penny). [thanks to Skip Sauer and JohnH for the pointer to this story from the NYTimes-Guardian]:

This week the cost of the metals in a penny rose above 0.8 cents, more than twice the value of last fall. Because the government spends at least another six-tenths of a cent — above and beyond the cost of the metal — to make each penny, it will lose nearly half a cent on each new one it mints.

The real problem could come if metals prices rise so high that it would be economical to melt down pennies for the metals they contain.

Appearances aside, pennies no longer contain much copper. In the middle of 1982, after copper prices rose to record levels, the mint starting making pennies that consist mostly of zinc, with just a thin copper coating.

But these days, zinc is newly popular. Rising industrial demand and speculation have sent the price rocketing. Since the end of 2003, zinc prices have tripled.

Tyler Cowen recommends that you hold onto your pennies awhile longer before selling them to the scrap metal dealer:

We all know, of course, that you should not exercise an option before its expiration. The longer time runs, the greater the chance for price to bounce around. Once you are "out of the money," further drops in price don't hurt you any. But "in the money," you gain from price movements in your favor. So hold onto those pennies and wait.

But what really frosts my whiskers in the NYTimes article is this:

Pennies, meanwhile, are in high demand. Last year, the mint made 7.7 billion of them — more than the number of all the other coins it produced. In the first three months of this year, the pace of penny production rose to an annual rate of 9 billion — the highest since 2001.

... [R]etailers demand pennies from their banks, the banks demand them from the Federal Reserve, and the Fed orders them from the mint. Many of the people who get the pennies in change throw them into a jar, where they may sit for years, requiring the mint to make more and more of them.

This argument is precisely the same as one I heard from a former executive with the Canadian Mint: banks want pennies, so we keep stamping them out. Surely if Parliament and Congress would just pass laws saying they aren't going to mint the one-cent coin any more, we would all be better off.

I must confess that I do not understand why retailers haven't gone this route themselves. They all have penny cups, but why don't they just round the final total, after taxes, etc., down to the nearest nickel? Heck, I'd be happy if they rounded it up to the nearest nickel (or dime even).

Oddity: last week at Starbucks, I received two pennies in my change. One was a 1946 and the other 1947 penny.