Canada began this month the years-long process of phasing out its one-cent coin, joining New Zealand and Australia in officially dumping their lowest denomination coin.
It’s a common-sense decision to stop making a currency that costs more than its face value to manufacture and inject into the economy. But many countries, like Tanzania, Bangladesh, Armenia and others, still continue to circulate what are essentially worthless discs of metal.
You can add to that list the United States, where the copper-plated zinc penny coin is commonly estimated to cost more than twice the face value of the coin to produce and deliver to the market, depending largely on the cost of zinc and gas prices, which fluctuate. And though the coin is often relegated to plastic cups next to cash registers, or eschewed completely by customers, the U.S. still has an estimated 150 billion pennies in circulation.
So now that America’s largest trading partner has dumped its penny, will the U.S. follow suit? And if so, how?
To help smooth the process, Canada’s Department of Finance has issued guidelines to round cash transactions to the nearest nickel in a “fair and transparent manner.” It points to New Zealand, which scrapped its penny in 1990, and Australia, which made the move in 1964, where consumers didn’t see price increases despite concern that venders would simply round everything up to the nearest nickel.
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A Bank of Montreal survey recently found that most people transact with debit cards anyway, and that a retailer would probably continue to accept these coins until they’re completely phased out, which could take a while.
In the U.S., the question of scrapping the penny pops up every once in a while, and it did so most recently in 2007 when the price of zinc (the main ingredient of pennies), copper and nickel rose so high that the U.S. Mint issued a final rule prohibiting the bulk export or melting down of pennies and nickels under threat of a $10,000 fine and imprisonment of up to five years.
Earlier this month, President Obama endorsed the idea of killing the penny during one of his Fireside Hangouts. The White House estimated that the move could save $100 million over a decade. That may be a conservative estimate, considering it costs more than $58 million to mint the coins last year, according to NBC News.
“This is not gonna be a huge savings for government, but anytime we're spending more money on something people don’t actually use, that’s an example of something we should probably change,” the president said.
Opponents of the move commonly use the argument that without the penny, retailers will simply round up their prices. For example, an item that’s $1.99 would become $2.
But a 2006 Wake Forest University study concluded that this so-called rounding tax was bunk, because though many prices end in “9,” once you add the sales tax, the chances of an item being rounded up or down (assuming retailers round in a “fair and transparent manner”) roughly equals out. For example, a 99-cent item plus a six percent sales tax equals $1.05.
Whatever the case may be, it’s not likely the penny will ever appreciate in value. Governments are notoriously possessive of their currencies, and many developing countries still circulate coins that consumers and merchants have scrapped altogether.
The cheapest penny on earth right now, for example, is the Uzbek tiyin, according to the BBC. It takes nearly 2,000 of them to buy a U.S. penny. Burma’s pya comes in second place; 855 of them would buy you an American penny. Compared to these coins, North Korea’s chon is a bargain -- 132 would get you a penny.