By Susan Lyon, Senior Analyst with NerdWallet Investing
President Obama has talked recently about getting rid of the penny – will he really do it?
Obama stated in February, when asked at an online Fireside Chat, that he didn’t know why we hadn’t considered scrapping the penny, citing Americans’ nostalgia as one potential reason:
“We remember our piggy banks and counting out all the pennies and then taking them in and getting a dollar bill or a couple of dollars from it and maybe that’s the reason people haven’t gotten around to it.”
But when it comes to the numbers, there are three key reasons the elimination of the one-cent coin might make sense.
1. The High Cost of Pennies and Nickels
As of January 2013, there are 674.8 million pennies in circulation. But due to high inflation since pennies were first minted in 1793, the penny is no longer worth what it used to be.
The 2012 Report of the U.S. Mint confirms that pennies – and nickels – both continue to cost more to create than they are worth:
“The unit cost for both penny and nickel denominations remained above face value for the seventh consecutive ﬁscal year.”
Despite continued losses, the report finds they actually decreased in 2012:
- Total FY2012 on pennies and nickels was $109.2 million – compared to FY2011 losses of $116.7 million
- The cost of making a penny has actually gone down since the year before: down to $0.0200 in 2012 from $0.0241 in 2011.
It would certainly save taxpayers some money to scrap both coins.
Total Unit Cost of Coins by Denomination:
- Penny: $0.0200 – 2 cents per 1, costs more than it’s worth
- Nickel: $0.1009 – 10 cents per 5, costs more than it’s worth
- Dime: $0.0499 – 5 cents per 10
- Quarter: $0.1130 – 11 cents per 25
2. The Penny is a Metaphor for Government Waste
Obama added to his thoughts on the penny, referencing the ongoing political debates around sequestration and the automatic federal spending cuts that are currently looming if a deal cannot be reached:
“This is not going to be a huge savings for government. But anytime we’re spending more money on something that people don’t actually use, that’s an example of something we should probably change. One of the things that you see chronically in government is it’s very hard to get rid of things that don’t work so that we can then invest in the things that do.”
Though unlikely to become his next top priority, killing the penny seems to be a plausible opportunity for the President to cut some unnecessary spending, particularly since many see it as a symbol of public spending waste and systemic inefficiency.
3. Canada Did It First
Canada eliminated its one cent coin in May 2012, citing fiscal responsibility as the primary reason – is this setting a new trend?
It turns out Canada isn’t the first, nor will it likely be the last. In fact, these other countries have already phased out their pennies – or their own versions of the smallest coins in circulation – to cut costs and increase efficiency:
- New Zealand
So what’s the hold up, America?
America honors past U.S. presidents and prominent statesmen by placing them on our currency, be it dollar bills or coins. Here’s an infographic providing the rundown of exactly which former statesmen and presidents are on U.S. money – and why:
It’s hard to imagine this list without the penny, but it seems like a possibility within the next year or two. The battle over the penny has yet to heat up, but America shouldn’t be surprised when it does.