Thursday, February 01, 2007

Pennies Are Evil

Right now, there are two US currency problems: (1) The increasing uselessness of the penny, (2) the government currently loses money of producing nickels (the combined losses from making nickels and pennies is estimated to be $40 million). NY Times columnist Austan Goolsbee discusses a solution offered by an economists at the Chicago Fed: eliminate the nickel and make the penny worth 5 cents.

Mr. Velde, in a Chicago Fed Letter issued in February, has come up with a solution that would abolish the penny, solve the excess costs of making nickels, help the poor, keep the Lincoln buffs happy and save hundreds of millions of dollars for taxpayers.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

What do you think of this option? The most important benefit of the policy to me is that K-Fed would be happy.


Anonymous said...

I think this is a good plan, yet I have some reservations about the possible effects this could have on the economy as a whole. I think the basis of this idea is good, but the finer details need to be explained better. He abolishes the worth of the penny, replacing the 1 cent worth with the 5 cent worth, but there are probably a lot more pennies than there are nickels in the USA. If the worth of the penny was raised to 5 cents, wouldn't there be a little inflation? I don't see how that would help the economy, it seems as if everyone would suddenly have more money to spend, causing a steep rise in prices. For example, I have 10 nickels in my change dish and about 60 pennies. I would have a lot more money if pennies were worth 5 cents. I agree with the idea, I just have a concern about the repercussions of having the penny be worth a nickel.


Anonymous said...

This doesn't sound like a too bad idea. I have heard of people melting down nickels and selling that for more than the nickel is worth. Something like that should be stopped and making the penny worth 5 cents seems to be a good idea. And in response to what Andreas said I think that they are talking about making new pennies that are worth 5 cents instead of just changing the penny to 5 cents. 1 cent is so worthless these days that this seems like the next logical step. No one really likes pennies anyway except for K-Fed (funny article).

-James C

Anonymous said...

I am all for this plan. Personally, I merely discard pennies when I encounter them in my change. I hold on to the other coins but I find that a one cent penny is never worth the hassle of even wasting space in my pocket of car. Since the government loses money on the production of nickels, I'm a strong supporter of making pennies worth 5 cents and knocking the one cent pieces off of the radar. It shouldn't really cause a change in prices of goods, maybe a few cents because everything would have to be rounded to the nearest 5 cent increment. Screw pennies!


Anonymous said...

Pennies are the most annoying form of currency around. The best part about pennies is that they are fun to throw at people. I agree that eliminating the penny would be useful but this would cause problems with taxes and things like that. Would businesses still be able to charge $.99 for things or would everything have to be rounded to the nearest five cents? It may not seem like a lot of money but even changes that small multiplied by hundreds of millions of US residents could cause problems like inflation like Andreas said or other possible side affects. It is true that dealing with pennies is a hassle and most likely a waste of time but I think a different strategy would be better to remove them from currency.


Anonymous said...

Like James, I think this could have a pretty positive on the country. The cost of a nickel is hurting us and the penny is the most useless thing ever. I get depressed with pennies because the whole time I am thinking where am I going to put these stupid things instead of thinking of all the great things I can buy with a few pennies- oh wait... there are none. The only thing that worries me is with the pricing of goods, because companies would have to make sure that things would be a cost that would be divisible by 5 cents. Other than that I think that this could have the potential to be a really good idea.

-Nick Wellmon