My three-year-old daughter and I typically wrap up our evenings with a pre-bedtime stroll around our northwest Washington, D.C., neighborhood. The nightly ritual ends back at home when I pry the fistful of coins she invariably finds on our walk out of her hands.
My daughter’s unerring ability to find coinage along our route doesn’t require any special gift, although her great eyesight and proximity to the ground do help. Rather, her prospecting is successful because pennies, nickels, and even dimes are simply more bother than they’re worth for most people these days. Rather than carry a pocketful of nearly worthless metal, people increasingly discard their coins as soon as they can.
While inflation may be low today, a few decades of even moderate inflation has taken a toll on the value of money. A dime today is worth as much as a nickel was in 1990, or a penny in 1950. Or, to put it differently, a penny today is worth the equivalent of one-tenth of a penny in 1950, a unit of currency that did not exist then–or ever–in the United States, and for a simple reason: it was too small a value to be worth the hassle.
But what was true in 1950 is apparently not true today, and nascent efforts to do away with the penny have gone nowhere. The federal government currently loses money from minting pennies and nickels–it will cost about $1.1 billion the next decade to continue to provide them–and the margin on dimes is getting narrower each year as well.
The growing worthlessness of coinage has induced the homeless to loiter outside of the cash-only places in our neighborhood to provide a guiltless way for people to get rid of their coins, but it turns out that they don’t especially want pennies or nickels either, and they will often discard them if someone puts them in their cup. What’s not worth their bother is my daughter’s treasure.
When homeless people can’t be bothered to deal with coins that’s as good a sign as any to get rid of them. Congress should eliminate pennies, nickels, and dimes, mandate that transactions round (up or down) to the nearest quarter, and give people a year to cash in their small coins before they become worthless.
Some rounding already occurs in retail markets: our local store owners round transactions to the nearest quarter when they’re on the till, but their employees (even their offspring) feel obligated to account for every single penny and wouldn’t dare round off a sale price. Chipotle–our Friday night dinner habitue–has been quietly rounding its transactions to the nearest quarter for a while, at least in the ones we frequent.
Perhaps the best way to get such legislation passed would be to identify some discrete entity that could be funded with the annual savings this change would create–I nominate the National Zoo (our morning walk) but I’d settle for regular launchings of a planetary explorer by NASA.
Saving a mere billion dollars may not seem like much from a Dirksonian perspective, but when that cost actually makes our lives less convenient–and that’s true for people across the income spectrum–it’s a billion dollars ill-spent.
The main advantage of the government minting money is seignorage–the difference between how much it costs to make and its monetary value. That we have multiple coins that provide no seignorage whatsoever is as good of a manifestation as any of the dysfunctionality of our current government. Let’s save the government some money and take a step towards keeping stray coins out of my daughter’s mouth by getting rid of our low value coins.
Ike Brannon is a Senior Fellow at the George W. Bush Institute and President of Capital Policy Analytics, a consulting firm in Washington, D.C.
