This video explains the meaning of seigniorage. Seigniorage is the difference of the face value of a coin and the production cost of that coin. It takes the US 2.4 cents to mint each penny, giving it a -1.4 seigniorage. The first time it cost more than 1 cent to make a penny was in 2006, and it's been increasing ever since then. In 2011, $60 million was spent on the production of the penny.
The penny hasn't been eliminated yet because penny production relies mostly on a company in Tennessee, Jarden Zinc., that makes all the blank pennies to send to the US mint. If the penny was to be eliminated, Jarden would lose a lot of money. Also, a lot of Americans say they still like the penny. Even though it's mostly used for tossing into fountains, for those of us who count out exact change, we can't imagine a wallet without pennies. Canada's penny will be going out of circulation this February, citing that no one really uses it anymore and that it's not worth the production cost....our currency is very similar to theirs, and I would be surprised if our penny lasts another 5 years. What do you think?
http://business.time.com/2013/01/24/waiting-for-change-the-battle-over-the-u-s-penny/
The penny hasn't been eliminated yet because penny production relies mostly on a company in Tennessee, Jarden Zinc., that makes all the blank pennies to send to the US mint. If the penny was to be eliminated, Jarden would lose a lot of money. Also, a lot of Americans say they still like the penny. Even though it's mostly used for tossing into fountains, for those of us who count out exact change, we can't imagine a wallet without pennies. Canada's penny will be going out of circulation this February, citing that no one really uses it anymore and that it's not worth the production cost....our currency is very similar to theirs, and I would be surprised if our penny lasts another 5 years. What do you think?
http://business.time.com/2013/01/24/waiting-for-change-the-battle-over-the-u-s-penny/
7 comments:
I think that the elimination of the penny will be inevitable simply because of the increasing cost to produce it. However, the penny is a very sentimental coin to most Americans, and many people fear that eliminating the penny would raise prices because things would need to be rounded to the nickel.
This has been quite an interesting debate for some time now. Although, this article has stated that while costs still remain at twice the face value, penny production costs are headed in the right direction. They have actually reduced from the 2011 fiscal year to 2012 fiscal year from .0241 to .0200.
Further, not only the penny, but the nickel as well is not being produced at a positive seigniorage. Together they have combined for an upwards of $469 million dollars over the last 7 years.
All this being said, my personal opinion points towards a much longer life for pennies in our market. I think we will see change to prolong their doomsday before we see an elimination of them. Everybody just loves wishing wells too much.
"If the metal for the penny were free, we would still exceed one cent."
http://news.coinupdate.com/cost-to-make-penny-and-nickel-declines-but-still-double-face-value-1751/
I agree with the comments above; the elimination of the penny is inevitable. My question is what happens when the penny gets eliminated? Do companies round to the nearest tenth? (This may be an obvious answer, I am just pondering) Also, what would happen to the pennies that Americans have in their homes? Can they go to a bank before it goes extinct and cash it in for other forms of money? Marshall, thanks for the info on the nickel, I didn't know that.
Looking past the potential changes to our monetary system, I can't help but wonder what the elimination of the penny would do to prices as a whole and to our culture. Many companies use a marketing strategy that markets items as 99.99 or 999.99 rather then 100 or 1000 because we translate it as a markedly lower price even though it is only the difference of a cent. What do you think the elimination of the penny would do to this marketing strategy? Would it simply go down to 99.95 or 999.95?
Paul, taking your question int your last sentence, following the the logic of marketing strategist that may be a good thing. If that 99.99 can produce such a significant effect in the human psyche, I'd think that the 5 cents would increase that effect. Of course the debate of whether the Nickel should be eliminated as well like Marshall mentioned, is still a potential problem. But honestly, our generation has seen so many things go "extinct" in our short span of 20ish years on this planet. Our children will never know what a walkman is, a floppy disk, and so many others. I understand that this is our currency we're talking about. But really, I think people will get over the fact that we lost a coin worth one cent. So many people discard one cent as if it didn't have any monetary value as it is. (i.e throwing it in a wishing well, leaving it in the "leave a penny" box next to registers, etc)
I believe that due to the ever rising cost of producing our currency it is viable that we move into a cashless society. It would eliminate numerous issues for businesses and the government. Illegal transactions with currency would cease but I am sure someone would find a way around it. But never the less moving into a cash less society would mean everything would be tracked which could be seen as both positive and negative.
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