Several years ago, Starbucks annoyed its NYC customers when the price of a tall coffee plus tax rose to $2.01. The problem was not the increase.
It was the penny.
Given three dollar bills, the baristas did not want to bother with 99 cents change. And no one wanted to walk around carrying 99 cents. So they took two dollars for the coffee and a penny from the tips jar.
One customer said, “It’s the stupidity of it. It’s what I’d call ‘the annoyance factor.’ It’s ridiculous. Why the extra penny? Who has pennies?”
Where are we going? To the future of the penny.
Producing a Penny
Reputedly containing some of George and Martha Washington’s silverware, the first U.S. coins were half dismes (dimes). Since then, a metal’s cost has helped to determine what our coins are made of.
For almost 150 years, it was okay to have pennies that were mostly made of copper. By 1982 though, the copper in a penny was worth more than a cent. One clever businessman even bought truckloads from the Federal Reserve, melted the copper and sold the ingots (which he no longer can do because it is illegal).
Meanwhile, although the Mint switched to a less costly mostly zinc penny, we still have a problem. In 2015, the penny added $39 million to the federal budget. The reason? Each one cost more than a cent to produce:
The Cost to Produce One Cent
Our Bottom Line: The Value of the Penny
A penny phase-out has some people worrying that rounding up prices will be inflationary. Others say charities will raise less. And some just like Abraham Lincoln. You can see that the arguments are not really convincing and yet Congress does nothing.
Perhaps though, eliminating the penny won’t be necessary. After all, what a penny purchased in 1950 now costs us a dime.
We might wind up with a penny that no longer has the characteristics of money:
- A medium of exchange. (Will we be willing to use pennies?)
- A unit of value. (Will it soon have no spending power?)
- A store of value. (Will it retain any value?)
And using plastic and smartphone apps, we won’t be annoyed by a $2.01 tall coffee.
My sources and more: As the penny gets more expensive and less practical, the debate continues. These 2016 NY Times and WSJ articles, and a 2008 New Yorker column sound rather similar. The debate also took me back to the Starbucks story.
Please note that in Our Bottom Line we’ve repeated several sentences that were published in a past econlife post.