A version of this article appeared January 15, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: A Melted Penny for Your Thoughts.
The Obama administration has officially repudiated the idea of minting a trillion-dollar platinum coin to address some of its fiscal problems. Washington shouldn’t stop there. Next to go should be not only the penny but the nickel, too.
Already each penny costs the U.S. government more than a cent to manufacture and distribute, and that cost is only rising without a suitable substitute for the raw materials. The coin has less purchasing power today than the U.S. half-cent coin did when the government abolished it in 1857.
But how to eliminate a coin? There are 150 billion pennies in banks, the cash drawers of retailers, the pockets and purses of citizens, and the jars atop dressers. Françoise R. Velde, chief economist of the Chicago Federal Reserve Bank, suggests the government revalue (or “rebase”) all cents to the value of a nickel so that they would circulate side-by-side, both worth five cents. A Treasury proclamation would do the trick at no cost.
This change would cause mini windfalls all over the nation, as 100 pennies in that dresser jar suddenly become worth five dollars, but it would prevent the problem of scrapping all those loose pennies.
Sooner or later, the government should also rebase nickels to the value of dimes, since nickels also cost more to produce than they are worth. A Dallas speculator whom I know (but who wishes to remain anonymous) has already hedged for that event by squirreling away $1 million worth of nickels in a Texas warehouse.
At least the U.S. is lucky that it has only five coin denominations in circulation. Italy struck seven denominations of euro coins in 2002, but by 2012 merchants and the public were throwing away the two lowest ones, deeming them valueless. There is a sixth U.S. coin—the dollar piece—but Americans have largely rejected it. Though Washington has struck 2.38 billion dollar coins since 1979, the bulk (1.2 billion) now reside in Federal Reserve storage.
Fourteen countries have now eliminated their lowest or two lowest coin denominations. All then rounded prices up or down to the value of the nearest coin still in active circulation. “Merchants will always round up, costing more for buyers!” screamed the naysayers. Not so. A 2006 Wake Forest University study of 200,000 convenience-store transactions in the eastern U.S. revealed that the rounding tends to balance out in a year’s time.
After Israel dropped its one-agorot coin in the 1990s, a drugstore chain there established a policy of always rounding down, trumpeted the policy in advertising and gained a marketing advantage over competitors. Thrifty customers increased the chain’s sales.
So what coin denominations should Americans plan for in the long term, as the value of low-denomination coins declines further due to inflation? Keep the dollar as the unit, as well as a 10-cent and 50-cent division of the dollar. That is three coins to keep while eliminating the cent, nickel and quarter.
Then, add five-dollar and 10-dollar coins, and the U.S. would again have five denominations to fill the drawer of every cash register. Stop printing paper currency in these denominations and accrue even more savings, as coins outlast paper 20-to-one in circulation.
Australia made a transition like this in two steps, abolishing its one-cent coin in 1990 and its two-cent coin the following year, melting both to make medals for the 2000 Summer Olympics in Sydney. But it is more efficient to do it all at once—and more considerate to the vending-machine industry, the largest user of coins. Industry spokesmen in the U.S. estimate it could cost up to $3.5 billion to recalibrate all their machines, and they shouldn’t be expected to do so twice.
In the plan to eliminate the cent, nickel and quarter, the latter two could be melted and recycled into new denomination coins. But what about all those cents?
Here is where the Treasury deserves great respect. In 1982, it began making cents with a zinc core and copper plating, rather than with a copper-zinc alloy. A gold star award to the Treasury official who made that decision. The brilliant part is that when all those cents are scrapped—those minted before 1982 and those minted since—the result will be a mixed alloy of copper and zinc. Voilà, brass. Add a little virgin copper and you have bronze.
Thus all those cents could be melted and used for bronze statues or bronze bells. But it is tricky to achieve the proper resonance for a perfect bell sound. So I have commissioned a top American sculptor—Elizabeth Jones, former chief engraver of the U.S. Mint—to sculpt a life-size or larger statue of David Rittenhouse, the first director of the U.S. Mint and a prominent astronomer and financial officer for Pennsylvania.
Gathering 23.7 million of those unwanted cents would furnish ample metal for a bronze statue of Rittenhouse to stand in Philadelphia’s Rittenhouse Square. The surplus metal would be sold to pay the artist, foundry expenses and other costs. The city of Philadelphia and the state of Pennsylvania would receive a bronze statue at no cost, and Rittenhouse would be honored with the metal from coins created by the Mint he founded in 1792.
The Rittenhouse statue should be reason enough for the Treasury to issue a waiver to its 2006 policy outlawing the melting of pennies. An added bonus are the hundreds or thousands of other bronze statues and bell towers that could go up in other cities across America.