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America the penniless?

By Patti Murphy

Rep. Jim Kolbe (R-Ariz.) wants Americans to stop using pennies. Kolbe introduced a bill in Congress this summer that would have U.S. merchants round all cash purchases to the nearest nickel, thereby eliminating the need for pennies. Folks paying by credit card, debit card or check, however, would likely continue to pay exact amounts.

Yeah, fat chance.

Kolbe for decades has been pushing legislation that would eliminate pennies from merchants' cash drawers and consumers' pockets, to little avail. But this time, he said there's a better chance of passage because the price of zinc (which is used to mint pennies) has been going stratospheric.

Under current market conditions, the Arizona congressman estimates the U.S. Mint spends about $0.014 to produce a penny. "That means $20 million will be wasted on penny production this year, and that is government waste at its worse," Kolbe said in introducing his bill, the Currency Overhaul for an Industrious Nation (COIN) Act. "It's time to say the penny stops here."

Kolbe's bill would have merchants round down to the nearest nickel all cash transactions ending in $0.01, $0.02, $0.06 or $0.07; transactions ending in $0.03, $0.04, $0.08 or $0.09 would be rounded up to the next nickel.

Additionally, the COIN Act would replace dollar bills with dollar coins. It also includes a provision for printing $2 bills. Another provision calls for transferring the U.S. Mint and the Bureau of Printing and Engraving (which prints dollar bills) from the Treasury Department to the Federal Reserve Board.

Reading reports about the COIN Act, I couldn't help but flash back to 1989, the first time I reported on a proposal to eliminate pennies from the U.S. economy. Searching my archives, I found the story in a payments newsletter I was writing at the time. The sponsor of that bill: Rep. Kolbe of Arizona.

So what does Kolbe have against the penny? Very little, I suspect. I'm betting that his public aversion to pennies has something to do with copper - a metal that's used in nickels, and one that's heavily mined in Arizona. Clearly, if Kolbe gets his wish, and pennies are legislated out of existence, nickel production will increase, and that would likely be good for Arizona's economy.

Americans like pennies

I don't think most Americans are ready to give up their pennies, or, for that matter, their $1 bills.

To test this theory, I searched the Web for public commentary on the topic. I found a blog chock full of entries on the Kolbe proposal, about half of them opposed to it. The most telling comment I read: "I'll try to think about this [the uselessness of pennies] the next time I see a penny on the floor."

I also found a report published earlier this year in USA Today on a Gallup poll. According to that survey, 55% of Americans consider the penny useful; significantly, fewer (43%) believe the penny should be eliminated.

The poll echoes sentiments expressed in 1989. Back then, experts told me that taking pennies out of circulation could spark inflationary concerns.

There are just too many people with fond memories of penny candies and parking meters fed with pennies. And too many people fear eliminating pennies would lead to a devaluation of the dollar. Just imagine how these folks would react if Congress eliminated dollar bills, too.

The experts I interviewed in 1989 mentioned that retailers would fight any bills calling for the elimination of pennies from their cash drawers. They also said the idea of converting the penny compartments in cash registers to dollar coin compartments would make retailers queasy.

To these concerns, add the headaches of rationalizing and implementing POS policies that effectively give discounts for some cash transactions, and force credit and debit card customers to pay higher prices. The COIN Act makes no mention of credit card and other types of noncash transactions. Presumably, these would continue to be calculated to the penny.

The switch away from pennies and dollars would also require changes to POS software to accommodate the rounding process.

Then, there's the issue of real costs. On the surface it looks like it costs more than $0.01 to mint a penny. But pennies have long lives; each one tends to be used thousands, if not millions, of times. Also, many pennies in circulation were minted in the 1970s and 1980s for much less than $0.014 apiece.

It's just politics

I'm not convinced Kolbe is serious about pushing this legislation through Congress. If he were, he would've introduced his bill last year, or even earlier this year. By the time he introduced this bill, fewer than 60 actual working days were left in the current session of Congress.

Every member of the House is up for reelection in November. This month they've been on vacation. They'll probably be on the campaign trail for the better part of October. That doesn't leave much time for legislating, and traditionally the post-summer sessions of Congress are tied up with budget matters.

Under Congressional rules, any legislation left over at the end of a two-year session must be reintroduced in any subsequent Congressional sessions. The COIN Act, however, does open the door to a public discourse on the use of coin and currency in an economy that's increasingly moving toward electronic payment instruments.

With a 33% share of the POS transaction mix, debit cards are now tied with cash as the method of payment most preferred by consumers for in-store purchases, according to data collected by Dove Consulting, Boston. Still, we're a long way from being a cashless (and coinless) society.

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at

Article published in issue number 060802

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