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A penny for your thoughts costs 2.41 cents

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POSTED February 4, 2013 12:40 a.m.

The odds are you are swimming in pennies.

You probably have hundreds scattered around your house, car and office desk.

There was a time when pennies could actually buy things such as penny candy.

Those days are long gone.

Now it is rare for anyone to pick up a penny they see on the sidewalk.

And to make it worse, it now costs 2.41 cents to make each of the 6 billion pennies minted each year. The last time a penny cost a penny to make was in 2006.

The only other coin that costs more to make than its face value is the nickel. It costs the mint 11.2 cents per nickel.

Pennies are a special problem. They have no perceived value with a lot of folks. That is why estimates run as high as 150 billion pennies that are staying out of circulation. If you had a hundred nickels in your drawer you’d probably spend them or take them to the bank. But a hundred pennies is more of a pain than anything else.

The last time a coin became worth less than it cost to produce the federal government got rid of it. That was back in 1857 when the government abolished the half cent.

So how do you get those pennies back into circulation and save Uncle Sam $150 million a year?

It’s simple. Just implement the suggestion of the Chicago Federal Reserve Bank’s chief economist Francoise Velde. He believes the government should revalue pennies to be worth five cents and stop producing new pennies.

It would create an instant windfall for virtually everyone. Those 150 billion pennies worth $1.5 billion now would be worth $7.5 billion. If you had 400 pennies around the house all of a sudden you have $20.

But what about the price of goods?

The conventional wisdom is merchants, manufacturers and others would all round prices upward. A 2006 study by Wake Forest University showed that isn’t the case. Of 200,000 East Coast convenience store transactions they tracked they found rounding tends to balance out in a year’s time.

Besides, rounding would only be needed for cash transactions. Purchases made by ATM, credit card, and check could still be broken down to the penny. All other transactions could be rounded. Those at one or two cents could be rounded down and those at three and four cents could be rounded up. It will come out in the end for the merchant and the customer not to mention the government in the collection of sales tax.

And if merchants wanted an edge, they could do what a drugstore chain in Israel did when that country dropped its one agorot coin in the early 1990s. The chain established a policy of always rounding down. It heavily advertised its policy and enjoyed a large spike in customers.

Other countries have ditched their equivalent of the penny including Australia that dropped its one-cent coin in 1990 and its two-cent coin in 1991.

Getting rid of the penny may seem a bit radical but it isn’t if you consider the waste factor of all those coins not being circulated because most folks perceive they have little value. Add in the fact they cost almost 2.5 times their face value to mint and you have a strong argument to pull the plug on the penny.



This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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