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by Jeff Franklin

Created on: June 19, 2007   Last Updated: December 03, 2009

Save the Penny

When my wife and I visited Bali, Indonesia in 2001, one day our tour guide took us to a local grocery store to buy some supplies. The cashier gave me a few candies in lieu of change of about 10 Rupias. A similar experience occurred to us in Venezuela in 1999. A store clerk gave me hundreds of Bolivars in over-change after I purchased a pint of milk, simply because he did not have smaller denominations of the Bolivar for the exact change. Both situations, albeit totally off our radar screen at the time, told us something loud and clear: the monetary system in these two countries is in ruins and we should exchange their worthless money to a more reliable currency as soon as possible.

Fast forward to July, 2006. I have read several news articles: ("Why keeping the penny no longer makes sense", under "The Forum", by Robert Whaples, USA Today, July 11, 2006, and, "Cents and Sensibility", under "Your Money", by Joseph Pisani, Business Week Online, July 23, 2006)regarding the issue of whether or not we should abandon the penny. Arguments for discontinuing the penny state that the rising cost of zinc and copper make it more costly than its face value to produce. With the shrunken value of the dollar today compared to a century ago, "why even have a penny?" so goes the argument. In my opinion, arguments for saving the penny proclaim far more fundamental necessity and merit. First, regardless of the penny's value, we'll always need a 100th divisible unit of the dollar. Second, if the penny (and possibly nickel) is retired, what will be next, the dime? The quarter? The dollar? Though inflation is eroding our dollar, eliminating its coinage subunits or change would surely deal another serious blow to the dollar. This may lead to hyper-inflation, as the dollar becomes steps closer to the smallest monetary denomination of our money.

The idea of eliminating the penny is not the first insult to our monetary cash system. Several previous historical events come to mind: going off the gold standard in 1933; the silver standard in 1964; and even the "copper standard" in 1982 (the last year when the penny was mainly produced in copper, not zinc, as it is today). OK, we have lived with copper-less pennies since 1982, so why can't pennies be made of some other metal that is less costly than zinc. But at least keep them! My suggestion is to make the pennies out of steel, a metal that is a tiny fraction of the cost of zinc. During WW II, the US Mint produced steel pennies in 1943 because the war effort consumed most of the copper that year. Yes, we survived with steel pennies then. We can do it again.

If skeptics against the penny want to do away with it because the penny is so worthless in its purchasing power, perhaps a better solution would be to re-evaluate the dollar to a higher purchasing value standard, and/or stop inflation possibly by permanent price freezing. Ultimately, that must happen anyway, or we will continue our slide to the bottom of a worthless currency like the Rupia of Indonesia and the Bolivar of Venezuela.

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