Paper money and coins are, if you think about it, amazing pieces of technology. They’re the physical representation of an abstract notion: value.
But most “money” in the economy today doesn’t exist physically – it’s digital. When you pay for groceries with a credit card, the credit card company doesn’t send a bag full of cash to the store: they transfer the money electronically.
We’re fast approaching a cashless economy, and in some ways that’s too bad: cash has a lot of advantages. It’s a direct means of transfer: there’s no credit card company or bank involved, extracting rent from any given exchange. This offers advantages: right now, buying things on Craigslist and heading to garage sales would be impossible without cash.
But fewer people than ever are using cash, preferring the streamlined user interface of a credit card or mobile payment system. If cash is going to compete in this marketplace, it needs to be simpler to use. It needs to ditch the penny.
The Penny Makes Using Cash Worse
If you’re like most people, there’s some version of this bowl in your house.
Pennies take up space in your wallet – space you’d rather use for something else. So, when you get home from the store, you put the pennies to the side. You’ll roll them later, you tell yourself. You’ll buy coffee with them.
Face it: you’ll never actually roll those pennies. And you’re not alone: people are doing this all over the world, and there’s a reason for it: pennies are worth less than the effort it takes to use them. Most people can’t even be bothered to pick them up off the street.
I’m not saying that, if the penny went away, people would all start using cash. But part of the reason people hate cash is that they end up with useless metal disks.
Pennies, to use tech parlance, are a seriously annoying bug – one that cash needs to fix if it wants to remain competitive.
Inflation Has Rendered The Penny Pointless
There’s quote you might have heard.
“A penny saved is a penny earned” –Ben Franklin
First: Franklin never said that. Second: adjusting for inflation, an early 1800’s penny is worth about 25 cents today. With these points in mind, I propose the following update:
“A quarter saved is a quarter earned” –Unknown
My point is simple: when the penny was worth more, no one saw the need for a piece of currency valued at 1/25th of a penny. Creating something like that would have been stupid, because you couldn’t have bought anything with it.
Today, it’s nearly impossible to find anything that costs one cent. Anywhere.
Seriously: try to find anything that costs a penny. You’ll have to resort to a single nail at the hardware store, but when you try to pay for it with your penny the clerk will probably tell you not to bother – saying to just take the nail and leave.
Which brings me to my next point.
Pennies Waste Time – And Time Is Money
Most people don’t bother with pennies – the main exception are people with nothing better to do with their time. If you’ve ever been in line behind such a person at a store, you know it’s frustrating.
Turns out, it’s not just annoying: it’s expensive.
“Walgreen’s and the National Association of Convenience Stores estimated that handling pennies adds an average of 2 seconds to each cash transaction. –RetireThePenny.org
Two seconds might not sound like much, but over the scale of the US entire economy that’s a massive amount of effort – it adds up to over $2 billion a year in wasted time. Prices at the store are higher because the penny exists.
In fact, pennies are such a time sink people use them to deliberately punish companies they don’t like.
If that’s not an argument for the penny’s elimination, I don’t know what is.
They Cost More to Make Than They’re Worth
In review: pennies are generally considered worthless by the general population, and cost the American economy $2 billion of lost productivity every year.
But it gets worse: they’re also created at a loss.
According to the US Mint, it costs 1.7 cents to produce a single penny – and the US makes a lot of them. So many, in fact, that getting rid of the penny would save the US government $52.9 million a year.
Sure: that’s not a huge amount in the context of the overall US budget. But that’s hardly an excuse for wasting millions of dollars on something that hurts the economy.
Canada Already Ditched Theirs – It Was Fine
“But you can’t just get rid of the penny!” you might be saying. “How would that even work?”
We don’t need to imagine that, because Canada already did it. YouTube genius CGP Grey explains:
Prices didn’t go up, and the world didn’t end. There are just fewer useless coins in circulation – that’s it.
Cash Needs to Become Better
As I said before: cash has a lot of advantages, but is disappearing anyway. Part of this has to do with the Internet: it’s not practical to use cash to buy things online. Some people are creating their own currencies to fill the void – countries should look into doing the same thing.
But cash is in decline offline too. If you care about cash, you want the experience of using it to be as good as it can possibly be. Getting rid of the penny would be a great first step, and would save the government millions – and the economy billions – as a side effect.
Disagree? Let’s talk below! I’m hoping for a great discussion.
Explore more about: Future of Money.