Tuesday, April 3, 2012

Penny Angst

I decided to poke around online to see what people think of eliminating the penny in Canada. The main thing I learned is that there are many opinionated math- and spelling-challenged people in the world. There are also many people who are very unhappy about dropping the penny. While there may be some good reasons to object to dropping the penny, I didn’t find any.

Let me go through the main arguments that I encountered.

I like saying “a penny for your thoughts.”

Saying this to a sweetheart is still permitted. When we are old enough to be great-grandparents, maybe we can explain to our families the meaning of that funny word “penny” that gets used in so many expressions.

What if retailers all round prices up to the next nickel?

I think this would enrage customers. If some retailer were bold enough to try it, we could shop elsewhere. However, I suspect that almost all retailers will follow the government’s guidelines to round shopping totals ending in 1, 2, 6, and 7 down to the nearest nickel and round totals ending in 3, 4, 8, and 9 up to the nearest nickel.

What if retailers are very clever to choose prices that always round up by 2 cents?

This won’t work if we buy 2 or more things at once because the rounding doesn’t happen until after the prices of all the items are totaled. Retailers may still be clever enough to choose prices that lead to rounding up more often than rounding down. Let’s suppose that retailers manage to average an extra half-cent per transaction due to rounding up more frequently than down. Even if I make 100 cash transactions per month, that’s only 50 cents. Big deal.

Even if the rounding is fair, bad luck might make the rounding go against me.

If the rounding amount is randomly chosen among -2, -1, 0, 1, or 2 cents one hundred times each month, the odds of being up or down by more than $10 after 50 years is less than 1 in 200.

The government is a bunch of thieves.

Even if that were true, keeping the penny wouldn’t help.

If there are some good reasons for keeping the penny, I’d like to hear them.

9 comments:

  1. Do you think we will ever convert back to paper ones and twos as well due to their lower cost of production? I feel that it follows the cost saving logic. American's never bothered converting their ones and I have to admit it is something of a hassle sorting through your bills but they must also be much cheaper to produce. Toonies just look expensive!

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  2. @Oliver: Coins are cheaper when you factor in the length of time they can stay in circulation. Bills have a lifetime of approx 30-40 months; Coins have a lifespan of 30+ YEARS.

    With respect to the penny, I liked having it around as a physical reminder of how powerful inflation is over time, and how our government has steadily debased our currency and eroded our purchasing power.

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  3. @Oliver: No, I don't see us going back to paper ones and twos for the reasons Nate explained. The US tried to move to dollar coins a few times, but those who don't like change (pun intended) won the day.

    @Nate: I'm content to keep a few pennies in a jar as a reminder instead of having to flick them out of change every time I buy something.

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  4. I'm personally glad to get rid of the penny. I'd be even happier if they scrapped the nickel at the same time.

    In the last 100 years, inflation has dropped the value of our currency to 5% of what it was. So a dime today is worth double what a penny was worth 100 years ago. If a penny was reasonable as the smallest coin 100 years ago, wouldn't a dime be sufficient today?

    I believe Australia has been looking into stopping production of their 5c coin. Maybe we can watch and see how that goes and possibly follow suit.

    One nicety would be that coin values would become proportional to coin size.

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  5. @Returns Reaper: I think you meant to say that a dime today is worth half as much as a penny was 100 years ago. I agree with your reasoning. We could scrap the dime as well and round everything to the nearest quarter.

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  6. @Michael: Yes, I did mean a dime is worth half of what a penny was 100 years ago. Thanks for clarifying that.

    I'd also be happy to get rid of the dime. I suspect that this would be very difficult to get the public to accept however. I suspect even getting rid of the nickel would bring all kinds of conspiracy theories out about how the government is getting rid of coins to somehow swindle people out of some money.

    With the usage of electronic forms of payment on the rise, where as you point out the cent is still a relevant concept, real currency has less importance than it has in the past.

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  7. I'm not an economist, but isn't this simply the result of the slow debasement of our currency. It gives proof of just how bad our real inflation figures are. Our purchasing power is eroding. I can't see how this is applauded by anyone. I find this actually disturbing.

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  8. @Returns Reaper: You're right that the public would not accept dropping nickels and dimes right now. I still use cash a lot, but I seem to be in the minority.

    @Paul: I agree with you that inflation is disturbing. However, dropping the penny is the result of inflation rather than its cause. It won't help us to keep the penny and pretend that inflation hasn't been so bad. I share your concern about the erosion of purchasing power, but wasting money making pennies won't help.

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  9. I think it should be a simple financial decision. When a coin costs more to make than it is worth it should be retired.

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