What a Penny Can Add

With just a few items in their cart, shoppers choose the supermarket express line to move quickly. The one person that slows it down is the penny counter. One convenience store trade group calculated that counting pennies adds as much as 2.5 seconds to every cash transaction. Seemingly small, combined as millions of transactions, it becomes a significant delay. Making one cash transaction a day, you could be wasting 730 seconds a year!

I know this is a minor worry, but still the underlying premise is valid. Perhaps we should eliminate the penny.

Eliminating the Penny

We can cite a slew of reasons for eliminating the penny.

The first is always the expense. A penny costs slightly more than three cents to produce and distribute. At 3.07 cents for each one, during 2022, the US Treasury spent $100 million more to make them than they are worth. When banks pay for the coins and currency they circulate, they are giving the Treasury seignorage.

Consequently, as shown below, the value of production costs and seignorage are inverse. With production cost up, seignorage is down:

So, you and I, pay for our pennies.

In addition, pennies are increasingly less spendable. Hit hard by inflation, the penny has even less purchasing power. Compared to 2017, its value is down by 20 percent. In addition, most vending machines and parking meters won’t accept them. And, we accidentally throw out $68 million in change each year.

However, using the following data, the Federal Reserve suggests there is a cash payments floor (that might relate to pennies) at 18% to 20%:

Penny defenders also focus on production and spending. Because our pennies are mostly zinc with a thin copper-plating, the zinc industry wants to keep them. Furthermore, they say that we need pennies to avoid rounding up prices. However, shown by a Wake Forest economist’s research, the purchase prices that end with .99 usually have a tax that ups the amount. At this point, some say eliminating the penny would boost demand for nickels that cost even more to produce.

Our Bottom Line: The Money Supply

Looking at the big picture, we are really asking about what our money supply should be composed of. And that takes us to why we demand money. We use money for transactions, for precautionary reasons, and for speculation. Every day, we use money to buy goods and services. We also want to be able to accumulate money as the savings and checkable deposits that we might need for an emergency. And finally, because some forms of money pay interest, they are categorized as satisfying our “speculative” demand for money–using money to make more money.

The reasons we demand money determine the kind of money we use. It is more likely that we will use cash for our transactions demand and checkable deposits for precautionary reasons.

So, how much makes a difference:

As does age:

And what we discard.

My sources and more: This WSJ article reminded me it was time to return to the penny debate. From there the BBC, The Washington Post and FT  had assorted facts about the penny. But it was the Federal Reserve that had the key facts.