Why the U.S. Penny Won't Die Like Canada's Just Didby
Poor little guy. Starting in the fall, Canada’s government will stop producing the lowly Canadian penny. The fact that pennies are expensive to make and are virtually worthless in today’s economy led them to fall victim to Ottawa’s budget cuts. The government says the measure will save around $11 million a year because each new penny costs 1.6 Canadian cents to produce. (One Canadian dollar is essentially equal to $1 in the U.S.) And a Canadian penny buys you only about 1/20th of what it could when it was introduced in 1858: A penny that could hypothetically buy a whole loaf of bread then would only buy a few bites of bread now.
Canadian consumers will be able to use the 1¢ coins indefinitely, but the government is encouraging businesses to start rounding to the nearest nickel. Lest people forget their arithmetic lessons, the government has put out a fact sheet on proper rounding techniques.
The Canadian move, which cites costs and inflation, follows the long-held logic trumpeted by many economists to get rid of 1¢ pieces in the U.S. Economist Stephen Dubner alone has nearly 20 entries on his Freakonomics blog begging for a U.S. penny death. “Can we please be next?” he wrote this morning after learning of Canada’s move.
A 2008 New Yorker article lays out the counterarguments that have prevented the penny’s seemingly inevitable extinction. There are objections to rounding, which one economist estimated could cost U.S. consumers as much as $1.5 billion over five years. Also, cutting out the penny may just put more reliance on the nickel—which is even more expensive to produce. The U.S. loses 1.4¢ on each penny it makes and 6.2¢ on each nickel, according to Coin Update, an industry news source. Plus, plenty of Americans like pennies and their Honest Abe heritage. Those enthusiasts, along with industry lobbies, have rallied to support the coins when there has been movement to kill them.
President Obama’s 2013 budget proposal includes plans to let the U.S. Mint change the composition of coins (page 173) so it can use less-expensive metals. It has changed materials before; pennies now are almost entirely made from zinc, not copper. But tinkering with metals isn’t so easy. Just check out the description in the budget:
“Such factors may include physical, chemical, metallurgical, and technical characteristics; material, fabrication, minting, and distribution costs; materials availability and sources of raw materials; durability; effects on sorting, handling, packaging and vending machines; and resistance to counterfeiting.”
If changes to the Mint, including the metal switcheroos, make it through the inevitable budget revisions, the savings could be more than $75 million in the 2013 U.S. fiscal year. It took a Canadian budget battle to kill that country’s 1¢ coin, but even in these economic times, don’t hold your breath for Congress to take down the penny soon.