Kristine Owram at the Globe and Mail reports that politicians will once again debate the elimination of the penny. As I’ve argued before, pennies are a waste of time. We’ve managed to delay killing off the penny so long that it’s time to get rid of nickels and dimes as well.
Let’s look at the numbers. Suppose that Joe still primarily uses cash and makes 500 cash transactions for “random” amounts per year. This does not include any cash transactions that are designed to be for an already rounded amount.
If these random-amount transactions are paid for without any pennies, they will get between 0 and 4 pennies in change. If Joe just throws the pennies away (as I do), he loses about two pennies per transaction on average, or about $10 per year. (I actually lose much less than this because I have fewer cash transaction in a year.)
Many people may not be willing to give up $10 per year even if it means not having to deal with pennies. However, let’s see how things change if the final amounts are rounded to the nearest nickel. On each transaction, Jim will be ahead one or two cents, down one or two cents, or even. Using some statistics, we can calculate that over the course of one year, there is a 99% chance that Jim will be up or down 81 cents or less.
If we eliminate nickels and dimes as well, there is a 99% chance that Jim will be up or down by $4.14 or less in one year. I’d be happy to get rid of all these coins for such a small amount of money, especially considering that the “error” amount is unlikely to be as high as $4.14 and could be a gain rather than a loss.
It’s possible that retailers could choose prices that always cause the final price to be rounded up after the taxes are calculated, but this would be easy to detect and would lead to bad press for the company.
Maybe if these politicians were to debate eliminating nickels and dimes as well, they could decide to eliminate just the penny as a compromise.
Thanks to a friend who I assume would prefer to remain anonymous for pointing me to the Globe and Mail article.