Tags: penny | cent | circulation | money

A Message to Obama And Congress: Kill the Cent and Save a Pretty Penny

Sunday, 01 Sep 2013 10:59 PM

By Mike Fuljenz

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The U.S. Mint could save tens of millions of dollars in future years, as many other countries have already done, simply by eliminating cents.

Alternatively, to avoid an arguably inflationary impact from such a move, it could retain pennies but use a cheaper composition, such as steel or aluminum. This would reduce or eliminate the savings, but could still curtail the loss.

Surveys consistently show that most Americans don’t want pennies discontinued. One 2012 survey found that more than two-thirds of the respondents wanted Uncle Sam to keep making them. The group that conducted that survey – Americans for Common Cents, a Washington advocacy group with close ties to the zinc industry – aggressively supports retention of pennies, but impartial polls have come up with similar results.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

At a time when federal spending is under intense scrutiny, this strong public support seems somewhat surprising, for analysts say it now costs the U.S. Mint roughly two cents – double face value – to make a single penny. And since the Mint produces billions of pennies a year, the government loses millions of dollars annually in the process.

The Mint made nearly 6 billion pennies in 2012 and lost a cent on every single one of them. In all, it lost $58 million – and the Mint, keep in mind, is a federal agency that traditionally makes money in more ways than one.

Faced with a similar sea of red ink, Canada stopped making cents in May 2012. That will save Canadian taxpayers $11 million a year – and that’s no small change!

In Economic Action Plan 2012, the Canadian government announced that it would phase out the penny from Canada’s coinage system. The decision to do so was based on its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environment considerations and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general.

Beyond the excess millions the U.S. Mint spends to crank them out, pennies also take up the lion’s share of the Mint’s production capacity.

One-cent pieces account for nearly three-fourths of the coins now being made by the federal government – and critics maintain that the Mint’s facilities and workforce could be used to better advantage, and much more profitably, by devoting them instead to popular higher-value coins, including special collector coins and sets sold by the Mint at a premium, which yield substantial profits.

Some of the increased revenue also would result from “seigniorage,” a positive cash flow that occurs when coins’ face value exceeds the cost of minting them, rather than the other way around.

Considering all these factors, dispassionate observers might wonder why the powers-that-be in Washington have been dragging their feet for years on killing the cent, especially now that Canada has acted decisively – and, it appears, successfully – to carry out a similar execution.

To begin with, the Mint itself can’t impose such a death penalty. Authority to discontinue pennies rests with Congress – and so far, that august body has been gripped by indecision as it ponders conflicting arguments by lobbying groups on both sides of the issue.

For obvious reasons, pressure to keep the cent has been applied persistently by providers of zinc and copper, the two component metals in the coin, who would lose contracts worth tens of millions of dollars every year if pennies were abolished.

Millions of consumers also oppose the cent’s elimination on economic grounds. Without pennies to make exact change, they maintain, prices would have to be rounded up or down to the nearest nickel – and skeptical Americans fear that most of the pricing and rounding would be up, increasing the cost of much of what they buy. Canada dispelled much of that fear with transparent rounding guidelines.

Earlier this year, President Barack Obama weighed in on the cent’s disposition, and issued what appeared to be a clear call to Congress to eliminate the coin. During an online “Fireside Chat” with a random group of Americans, Obama described the penny as “a good metaphor for some of the larger problems that we’ve got,” noting that the government has “problems getting rid of things that don’t work so that we can then invest in the things that do.”

Obama said that while killing the cent wouldn’t result in huge savings, it still could be viewed as “an example of something that we should probably change.” And he put the onus for this squarely on Congress. Ultimately, he said, it is up to Congress to pass a bill authorizing the coin’s elimination. “The penny,” he said, “is an example of something that I need legislation for.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

Many might quibble with the President’s suggestion that the savings from such legislation wouldn’t be substantial. As moviegoers who recall the Washington-based comedy “Dave” would appreciate, $58 million a year is far from inconsequential and could feed a great many hungry, homebound Americans whose “Meals on Wheels” program has been hurt by the sequester.

At the direction of Congress, the Mint has been studying potential new compositions that would make the coin cheaper to produce and save the denomination from the scrap heap.

Steel and aluminum are two alternative metals that have been mentioned. And aluminum cents wouldn’t be entirely new. Four decades ago, the Mint made more than 1.5 million prototype aluminum cents during a similar crisis, with every expectation they would soon see use in circulation. But the price of copper receded, and plans for the change were dropped.

Will today’s cent get the same kind of reprieve? I hope not!

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.

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