Abolish the penny?

by on December 18, 2017 at 2:19 pm in Economics, Law | Permalink

There is the danger that prices will be rounded up more than down.  A 19-year-old Canadian, Christina Cheung, has done a study of penny abolition in Canada and here are her findings:

She found 60.8 per cent of grocery store prices ended in 8 or 9.

Cheung put those numbers through a computer simulation program that generated hypothetical purchases.

“I simulated [grocery purchases] depending on what province you’re in, what tax rate you have, and how many items you buy,” she said.

She excluded the volume of credit and debit card transactions, which aren’t affected by penny rounding.

She then made a discovery: a typical grocery store would earn an additional $157 of revenue from rounding each year.

All together, she found grocery stores in Canada yield an additional $3.27 million dollars over a year.

The paper will be published in Atlantic Economic Journal.  Here is the full story by Roshini Nair, via Michelle Dawson.

1 Dick the Butcher December 18, 2017 at 2:30 pm

In paying bills, a friend habitually rounds up to the next-higher dollar to ease his check book arithmetic.

Anyhow, cashiers still need to “play around” with nickels, dimes and quarters. I doubt this proposal would materially affect the private sector.

2 Art Deco December 18, 2017 at 3:40 pm


3 Vladimír Vladimírovich December 18, 2017 at 9:32 pm

How much cock could a wood cuck chuck if a would cuck could cuck cock?

4 Picador December 18, 2017 at 2:50 pm

I kind of feel like this summary ignores the elephant in the room: the massive inefficiencies created by minting, distributing, and exchanging pennies.

Having lived in Canada pre- and post-abolition, I can assure you that ditching the penny is the most significant step forward for civilization since Wikipedia was founded.

5 Mulp December 18, 2017 at 3:14 pm

Did eliminating the penny eliminate EFT and credit transactions to the penny?

Why not eliminate nickels, dimes, as well? Quarters?

I use a laundry because of the big machines so I regularly feed 32 quarters into the washer. Then 2-5 quarters into multiple driers, multiple times. The washer cost can be 26 quarters, 28, 30, and 32. Switching to dollar coins wouldn’t affect me on the wash, but would on the dry. I’ve had experience with tokens, both metal and electric, and with private debit cards. US currency coins and coin mechanisms are the lesser evil. And I have no smart phone, not even a cell phone, much less with text.

6 Art Deco December 18, 2017 at 3:56 pm


7 Vladimír Vladimírovich December 18, 2017 at 9:50 pm

Is it true, Artyom, your mother’s favourite ice cream flavour is chocolate?

8 Ed Snible December 18, 2017 at 5:36 pm

The precedent is that the US had a half cent that was discontinued in 1857.

When it was discontinued, it had the purchasing power of 14 cents today (2014 reference: https://gizmodo.com/the-u-s-killed-the-half-penny-when-it-was-worth-what-a-1639266183 )

I would love to see the cent, nickel, and dime eliminated and the restoration of the $10 coin denomination we had until 1933.

9 Larry Siegel December 18, 2017 at 8:58 pm

We had $20 gold pieces too. I have one.

10 Art Deco December 18, 2017 at 3:56 pm


11 Max December 18, 2017 at 2:50 pm
12 Sigivald December 18, 2017 at 3:17 pm

“She also doesn’t understand that if you buy two $0.98 items you have a total of $1.96 which now rounds down instead of up.” is the best one.

The only prices one should study for the effects of a penny-rounding change are the end prices the customer actually pays in total.

(Canada might well have this data, as might Australia, as both have made the transition.)

Each cash transaction (payment) has up to four cents of rounding, up or down; no more possible gain or loss can be achieved.

13 dearieme December 18, 2017 at 4:58 pm

Howl of laughter. Bless her little cotton socks.

14 Boonton December 18, 2017 at 6:50 pm

“She also doesn’t understand that if you buy two $0.98 items you have a total of $1.96 which now rounds down instead of up.” is the best one.”

Err no. I suspect each item would round off as it is scanned. The merchant is not going to know if the customer is paying by cash or card until after the total is tallied. Except for gas, credit cards do not allow merchants to charge customers paying by plastic more. So when item 1 is scanned for $0.98 it rounds up to $1.00 and so does item 2.

15 Nessuno December 18, 2017 at 7:26 pm

That’s not how this works. That’s not how it works at all.

16 Anonymous December 18, 2017 at 10:13 pm

You’re doubly wrong. That’s not how it works, and that’s not how she thinks it works or modeled it to work. She simulated baskets of goods

17 Stephen Boisvert December 18, 2017 at 2:52 pm

I suspect this hits charity most all. All those change catchers on the counters in stores will lose out on a percentage of the pocket change they would normally get from people who don’t want to carry pennies.

18 carlospln December 18, 2017 at 2:56 pm

Australia did this, like, twenty five years ago.

Note the exclusion of savings in time from coin minting, distribution and exchange of the wretched 1 cent pieces, per Picador’s comment above.

Another economist’s trip to ‘Externality-Ville’!

ps Three [3] M dollars per annum: somebody call the cops!

19 Shazam December 18, 2017 at 2:56 pm

>a typical grocery store would earn an additional $157 of revenue from rounding each year.

Which is approximately .0000007 cents per customer. Each of whom saves about 22 minutes per year from NOT having to watch morons trying to hand out pennies.

For the love of God, abolish the penny.

20 chuck martel December 18, 2017 at 3:08 pm

Each of whom saves about 22 minutes per year

Wow! Twenty-two minutes out of 525960 or .0041828% of the year! Where would those savings go? Is there a time piggy bank somewhere where those 22 minutes could rest until they’re needed to stand in line for tickets to an Ottawa Senators game? Oh, one needn’t stand in line to get in to a Sens game. OK, the time savings over a period of two years would enable the saver to watch almost a whole episode of the Red Green Show. Easily worth the trouble.

21 Efm December 18, 2017 at 3:46 pm

I would personally pay some non-zero amount of dollars to avoid the psychological terror of watching people struggle with pennies at checkout. Maybe not $157 per year, but definitely more than zero.

Also, picking up a penny from the ground pays less than the Federal (US) minimum wage if it takes you more than 4.9 seconds. I’ll take that to my time piggy bank thank you very much.

22 chuck martel December 18, 2017 at 5:07 pm

Customers generally take less time to pay with cash than they do with plastic, if that has any bearing on the situation. If you don’t like pennies simply leave them on the counter and walk away. Nobody will chase you down and make you take them with you.

23 Larry Siegel December 18, 2017 at 9:00 pm

Actually, there’s usually a little, time-wasting, expensive “fight”: “You left your pennies.” “I don’t want them.” “What do you want me to do with them.” “Put them in the charity box.” “We don’t have a charity box.” “Then give them to the next customer.” “Are you kidding?”

24 Steve-O December 18, 2017 at 9:46 pm

You sure about that? Not sure about everyone else, but I run my card as they’re scanning the items, then they print the receipt and I’m done.

25 Peldrigal December 20, 2017 at 11:01 am

That’s jsut because you people don’t use contactless cards

26 Shazam December 18, 2017 at 5:51 pm

That’s $157 per year spread across the entire customer base for twelve months.

27 Unanimous December 18, 2017 at 4:16 pm

What trouble?

28 Axa December 18, 2017 at 4:26 pm

Minutes are not equal. Presumably all humans sleep, that takes out 1/3 of a year out of calculation . Then consider stores are not open the whole time……those minutes can make a difference.

29 Shazam December 18, 2017 at 5:52 pm

We’ve found the dope. It’s Chuck Martel, everybody!

30 Cooper December 18, 2017 at 3:05 pm

36 million Canadians. $3.3 million in costs. That’s less than 10 cents per Canadian.

I easily lose 10 pennies per year just because they roll away, fall out of my pocket, etc.


31 Efm December 18, 2017 at 3:47 pm

I literally throw pennies in the trash because the value I get out of them is less than what it costs me to mentally keep track of pennies.

32 Unanimous December 18, 2017 at 4:17 pm

That’s a crime isn’t it?

33 collin December 18, 2017 at 4:23 pm


The average is making an extra $157 per year across how many millions sold at a grocery store. That is almost pennies to a store.

34 Rz0 December 18, 2017 at 3:06 pm

Most of the shopkeepers in my NJ town round the final price to the nickel that is favorable to me, the customer. So something that rings up as $1.51 is rounded down to $1.50, as is something that rings up as $1.54.

Shopkeepers want to keep the transaction simple and don’t want to lose the customer.

As far as the article about Canada, that $157 of revenue probably increases total revenues by something less than 0.001 percent. Grocery store revenues run into the millions per year.

35 Mulp December 18, 2017 at 3:16 pm

I find nickels more annoying than pennies and dimes.

36 Art Deco December 18, 2017 at 3:58 pm

I used to have an active interest in nootropics. I tried most everything and would buy my nootropic powders in bulk. Ever since going over to the dark side with modafinil, my interest has waned. Is there any over-the-counter nootropic that can compete with provigil? Not everyone wants or needs or can afford a big gun like modafinil, and would instead use something that is effective, safe, and proven in the real world to work.

37 albigensian December 18, 2017 at 3:10 pm

Abolish the penny? Why not abolish the dollar instead?

Or at least re-value it, so that ten old dollars = one new dollar. That way a new penny would be worth an old dime, an a new dollar would be worth about what an old dollar was worth in 1950.

38 Ted Craig December 18, 2017 at 3:13 pm

Ditch the penny and the nickel. Use the metal to mint dollar coins. Ditch the dollar.

39 Ted Craig December 18, 2017 at 3:13 pm

Dollar bill, that is.

40 dearieme December 18, 2017 at 5:00 pm

Adopt the policy of the (British) Monster Raving Loony Party and issue 99 cent coins.

41 Larry Siegel December 18, 2017 at 9:02 pm

Adopt the policy of the (British) Monster Raving Loony party and make Lord Sutch the president. At least he can play guitar.

42 clamence December 18, 2017 at 8:07 pm

Have you ever thrown a Susan B Anthony coin at a stripper? They don’t like it when you make it hail.

43 Ted Craig December 19, 2017 at 6:30 am

They prefer $2 bills.

44 Boonton December 18, 2017 at 6:55 pm

Trump is working with the ChiaPet people to introduce the Trump clay coin that will accomplish most of what you want there.

45 Ted Craig December 18, 2017 at 3:12 pm

Each year? Wouldn’t the effect be limited to the first year?

Also, how many people use the penny they get in change? It either clogs up their pockets or goes in the dish.

46 Sigivald December 18, 2017 at 3:20 pm

No, because prices are still in pennies – the rounding rule is onlyu for cash transactions, to eliminate the use of pennies.

Credit and debit and check transactions still use to-the-cent prices.

(Disclosure: I’m a programmer that works on a point-of-sale system project, and I implemented the rounding system Canada demanded, for our product, so we could keep selling it in Canada; the above is my distillation of the requirements we got from Revenue Canada, indirectly.)

47 Ted Craig December 18, 2017 at 3:35 pm

But if they get rid of pennies entirely, that’s a moot point, isn’t it?

48 derek December 18, 2017 at 3:43 pm

There are no copper pennies. There are still $1.68 transactions.

49 Ted Craig December 18, 2017 at 3:53 pm

That makes no sense. If you permanently eliminate the penny, there will be no more $1.68 transactions because people won’t have a means to pay them. It’s just like the way nothing has cost six and a half cents since 1857.

50 RohanV December 18, 2017 at 4:23 pm

@Ted Craig,

Let’s say you buy a coffee for $1.68. If you pay with cash, you pay $1.70. If you pay via credit, you pay $1.68.

There’s essentially two different final prices, one for cash and one for credit. But only the final price is rounded, not any intermediate prices.

51 Mulp December 18, 2017 at 5:38 pm

“Let’s say you buy a coffee for $1.68. If you pay with cash, you pay $1.70. If you pay via credit, you pay $1.68.

There’s essentially two different final prices, one for cash and one for credit. But only the final price is rounded, not any intermediate prices.”

More like at least three.

The cash price of $1.70, all to the store.

The debit price of $1.68 less the Congress dictated fee of no more than 22 cents.

And the credit card price of $1.68, less 40 to 50 cents in fees to credit card companies, of which some portion is rebated to consumers at 5%, or about 3 cents resulting in some customers paying only $1.65.

Ok, so why do retailers want to “save money” by making cash cost consumers more while netting less due to rent seekers making their profits even bigger.

I remember when banks were promising that getting rid of cash and checks with electronic transactions would cut the fees and boost interest paid on savings accounts, then bumped to to the maximum of 4.5% on free accounts. Now banks charge fees to hold your money, and pay virtually no interest, but eliminating human transaction processors results in higher fees charged for computer processed transactions. .

52 Steve-O December 18, 2017 at 9:49 pm


…my checking account pays 3% (up to a 15k balance). Cash transactions have processing costs too (theft, time for deposits, etc.).

53 derek December 18, 2017 at 9:57 pm

There are still 100 cents in a dollar. The only time this rounding occurs is when making change.

54 clockwork_prior December 19, 2017 at 12:40 am

‘It’s just like the way nothing has cost six and a half cents since 1857.’

You have never actually done any accounting in the real world, have you? Plenty of things costs 6.5 cents, or 6.738 cents, or 6.003 cents. For one trivial real world example, due to currency exchange rates. That you may not have paid 6.5 cents does not mean that nothing costs 6.5 cents.

55 Ted Craig December 19, 2017 at 6:32 am

We’ve all seen Superman 3, Prior. The topic is the price consumers pay.

56 Matthew Young December 18, 2017 at 3:16 pm

I did my own research on why prices end in .99 or .98. I talked to my corner shopkeeper who is also a mathematician. He said:

The purpose of the 98 or 99 is to require a one or two penny cash return as to confirm the transaction. Some change must be counted out as it is the confirmation or conclusion of the protocol. WHen the customer receives a few cents, there is no coming back and claiming that they rally gave a $20. It is standard, called giving change on a cash purchase.

In the future crypto world, the transaction is confirmed when the shopkeeper and customer both agree the cash cards are valid, then they assume the cash cards properly erased the ‘used watermarks’ given to the shopkeeper. No double soending.

57 msgkings December 18, 2017 at 3:22 pm

This is interesting but far less important than the obvious ‘nudge’ of having a customer subconsciously think $1.99 is a better deal than $2.00

58 TMC December 18, 2017 at 4:24 pm

This, and there is the feature that the cashier doesn’t just slip the dollars into his pocket. Harder to do if he needs change, so has to ring it up.

59 albigensian December 18, 2017 at 6:04 pm

High-end stores price things in whole dollars, and it’s hard to believe anyone doesn’t automatically translate $1.99 into $2.

A more likely theory is, the merchant is signalling “I’m a discount merchant!” by using the penny-off-a-whole-dollar price.

60 Steve-O December 18, 2017 at 9:52 pm

Right, just like I instinctively have a bad reaction to restaurant menus that prince things in .99 (like having pictures on the menu).

I assume that places selling appetizers for 11.99 are catering to a different clientele than those that list it as 12. 12.5 is acceptable, but not 12.50 for some reason, too.

61 Unanimous December 18, 2017 at 4:20 pm

So the XX.99 prices will become XX.95.

62 Boonton December 18, 2017 at 7:00 pm

Ok but then why do gas stations always add 9/10ths of a penny to their list prices? Are people so fanatical about gas prices that they will drive an extra five minutes to hit a station for 2.79 /gal versus 2.80 / gal therefore the owner is conning drivers by making the actual price 2.79 & 9/10ths?

63 Larry Siegel December 18, 2017 at 9:04 pm

That is a nice piece of folklore but in the United States we add sales tax instead of including it in the price so the 99 cent item costs something like $1.05. Where’s the confirmation?

64 Hazel Meade December 18, 2017 at 3:22 pm

There is the danger that prices will be rounded up more than down.

There is this whole theory about how prices are set by consumer choices and stuff.

65 Art Deco December 18, 2017 at 3:59 pm

The piracetam puts your brain into HULK mode: increasing your short-term memory and recall ability while allowing thoughts to flow easier. Since it most likely increases cellular membrane fluidity, in theory, it should help the rest of your nootropics do their jobs easier. The ALCAR indirectly prevents the ACh depletion piracetam may cause while giving your body even more of an energy boost because it uses a different mechanism of action than the L-theanine + caffeine. Rhodiola is there to fight the mental fatigue, physical fatigue, and any stress that occurs from long and/or intense study sessions. The magnesium is needed so your enzymes maintain proper functioning when working harder; it also indirectly promotes energy production and metabolism.

66 Hazel Meade December 18, 2017 at 4:55 pm

Tyler obviously isn’t getting enough sleep. Or maybe it’s the study’s author. Not sure which.

67 Potato December 18, 2017 at 5:04 pm

The bots and trolls are certainly getting stranger.

68 Ryan Cousineau December 18, 2017 at 3:28 pm

It’s so much better than you think…

Non-cash transactions are still settled to the penny, so there’s an arbitrage opportunity available to consumers.

Right at the transition, I calculated for a friend that if you aggressively shaped your payment method to take advantage of this arbitrage, you could save something around $3.00 a year (assumptions: about 300 transactions a year, average rounding arbitrage of 2 cents, and half the transactions can be arbitraged. Basically, you can arbitrage an average of a penny per transaction, though if the store is actually biasing prices to steal some of the rounding opportunities, it might be lower. It can’t be worse than zero).

69 Efm December 18, 2017 at 3:40 pm

Didn’t somebody make a movie about a bunch of guys who worked in an office and did this at scale?

70 Matt December 19, 2017 at 7:31 pm
71 derek December 18, 2017 at 3:40 pm

Did she look at the average transaction in a grocery store? Doesn’t look like it. She assumed that everyone who bought something in a grocery store purchased one item.

The valuable information to be gleaned from this study is the value of an economics degree from UBC. And the value of CBC news reporting. Maybe that is why pennies are missed.

72 Harun December 18, 2017 at 3:56 pm

I did not read the link.

I will say it says she’s 19.

This suggests its not supposed to be PHD level work, but just an exercise.

Its not like she was paid for this work.

73 A Truth Seeker December 18, 2017 at 4:06 pm

So that is what makes it OK. If I kill a lot of innocents but get no money out of it, it is OK, right? No harm done. Maybe we should demand more from the Academy and government and media. Maybe we should set the bar higher than not being a hitman.

74 Hazel Meade December 18, 2017 at 4:59 pm

I is worth more than a passing notice of the damage that equally stupid research on the minimum wage and other subjects causes on a daily basis.

Whatever did the world do without tenth of a penny coins?

75 TKB December 18, 2017 at 3:54 pm

Why not let list prices go to the penny and round the total bill to the nickel/dime/whatever? Most people I know don’t bother with a trip to the grocery store for only a handful of items.

76 Matt December 19, 2017 at 7:30 pm

That’s exactly how it works in Canada.

77 A Truth Seeker December 18, 2017 at 3:59 pm

A chilling foreshadowing of things yet to come to America…

78 Deep Voice Movie Trailer Guy December 19, 2017 at 2:14 am

“In a world….”

79 Floccina December 18, 2017 at 4:02 pm

And it will save us consumers much more in time not having to deal with pennies. let’s do it.

80 RPLong December 18, 2017 at 4:05 pm

Arguments against the penny always strike me as being rather odd. On the one hand, you get people who are breathless and exasperated about having to handle, store, and use pennies, despite the fact that no other denomination of currency has this effect on them. Then you’ve got the people who want to abolish the penny to make their arithmetic easier. Finally, you’ve got the people who think the government ought to be in charge of minting and printing a medium of account, but that this becomes a total waste of government resources if we have to account for economic transactions with precision greater than what nickels give us.

None of the arguments strike me as being serious in any way, shape, or form.

That’s not a defense of the above-linked paper or its methodology, but are there any serious reasons for reducing the precision of our medium of account and exchange?

81 Ted Craig December 18, 2017 at 4:14 pm

Here are two arguments against the penny:

Pennies have a very limited use. They are the only coin most coin-accepting devices reject.

Pennies cost more than one cent to produce. Nickels are worse, but at least they have more use.

82 RPLong December 18, 2017 at 4:37 pm

Regarding your first point, that’s a good argument for not using pennies in coin-accepting devices, but otherwise says nothing about what the US Treasury ought to do.

Regarding your second point, this, too is an odd objection to me. Is there any reason to expect that currency denominations should cost exactly as much as their spot value? Didn’t that idea float out the window when we decided to allow currency to float? And think of all the other government necessities (such as we agree exist, such as police officers and censors) that cost more to produce than their economic spot value. We don’t say that we should abolish the census because it’s expensive; we accept the cost of the census as something that needs to be paid for. Why are currencies any different?

83 Anonymous December 18, 2017 at 5:06 pm

Everything about your comment and position are wrong. The fact that pennies are useless is an excellent reason for the US Treasury not to waste time and (our) money making them.

Pennies costing more than their value is a very good reason to get rid of them. If the census costs more than it is worth we shouldn’t do it, obviously. No one thinks that.

84 RPLong December 18, 2017 at 5:52 pm

Let me try clarifying a point of mine you may have missed: No one is proposing a mere reduction in pennies, which would be the logical first step. Instead, everyone is ALL or NOTHING. So, the idea that coin-op machines don’t accept pennies is an argument for fewer pennies, not an argument for no pennies. An argument for no pennies would be something more like, “Every single transaction is made worse by the inclusion of pennies,” and that’s not just hard to prove, it sounds completely untenable.

85 Mulp December 18, 2017 at 5:54 pm

Do pennies cost more per transaction that the EFT and credit transaction fees?

Why should the US government allow EFT transaction to cost more than the costs of using pennies, nickels, dimes, quarters, $1 coins and bills, per transaction?

86 Potato December 18, 2017 at 5:34 pm

As we transition to a cashless or at least mostly cashless economy, the relative cost to benefit ratio of the penny rises. Every year it makes less sense to keep the penny in circulation.

Most of my peer group does not carry cash unless they are going to a place or event that requires cash. The ubiquity of card reader technology has made it unnecessary except for the occasional foray into dive bar territory.

The penny made sense years ago, but with inflation it has become an irrelevant coin whose retirement is due.

It costs more in time and literal money than it saves by denoting exact transactions, made more so by the almost universal adoption of card transactions by the 35 and under demographic. Even tiny restaurants have iPads with card readers.

The only true use of coins is shitty vending machines that do not read cards. Which is fine, except for the fact that these machines also do not accept pennies. Hence the futility of this specific copper coin. Although if we changed the valuation of every denomination by 10x it would make the coin useful again, the transition would cost more than the transition cost of eliminating the penny. Card transactions can still be to the cent.

87 RPLong December 18, 2017 at 5:49 pm

Potato, what I like about your comment is that your logic extends to all currency denominations, not just the penny. That kind of reasoning is something I can get behind. But the notion that it’s only pennies — MAYBE nickels, MAYBE — that have this problem is strange and unserious to me. Your comment answers some of the other comments that have asked, if the penny then why not also the dime, the quarter, the paper dollar… and so on.

88 Mulp December 18, 2017 at 5:56 pm

Cashless transactions cost far more than the cost of a penny, even if the penny were simply minted, paid in change, and then thrown away.

89 Anonymous December 18, 2017 at 10:17 pm


Are you considering the cost of mining the copper and trucking the pennies around and carrying the pennies in your purse (yes you carry a purse) and your pets choking on the pennies and dying and wasting years of your life counting out change and losing out on all your cash back and etc.?

90 Unanimous December 18, 2017 at 4:29 pm

Introduce a quarter cent coin.

Or a third of a cent coin if you think having to distinguish between quarter penny and quarter dollar is too onerous. Maybe the 1/pi penny coin just for the fun of it.

91 Warren December 18, 2017 at 5:05 pm

In the 80s I worked for a Domino’s franchise that rounded everything to the nearest quarter-dollar including tax. So nothing you purchased would ever end in anything other than .00, .25, .50, or .75.

It was awesome. As a driver I only ever need to carry three quarters as my coin change.

Now after a few more decades of inflation have happened it should be easy for everybody to round up/down to the quarter and we could get rid of pennies, nickles, and dimes.

92 Mulp December 18, 2017 at 5:50 pm

Why not eliminate the $1 and $5 bill and the current coins, and replace them with $1 and $5 coins which would have less value than quarters and half dollars back when America was Great.

93 Eric Hirschhorn December 18, 2017 at 6:51 pm

Come on guys, we can do better here. This rounding stuff is just the immediate cost, which is approximately zero. What happens next? Prices can only change by five cents at a time. Increased price rigidity amplifies business cycles, increasing unemployment and poverty. It’s the apocalypse and the only thing that can save us is the penny.

94 Boonton December 18, 2017 at 7:11 pm

There must be a good method for determining just how precise it makes sense for coins to end up being? Why not a half cent piece? Or 1/10th cent piece? It seems to me you have to figure out the value generated by the government and then add to it the value of the marginal transactions facilitated.

For example, in a world of where quarters are the smallest coin, there will be some transactions between $x.00, $x.25, $x.50 and $x.75 that just won’t happen. Clearly this can’t be all transactions that happen ‘between quarters’ since in a world without pennies/nickles/dimes many parties would simply accept rounding up or down to a quarter instead of refusing the transaction entirely. However some transactions will not happen because such a bargain cannot be struck. These will be numerous on the small dollar amount but very rare on the higher dollar (Between $0.75 and $1.00 a store and buyer may not agree on the price for low end gum…but no one is going to refuse to buy a car or sell a car because neither side will give up a few cents on a desired price of $25,555.67). The marginal value of those lost transactions should be added to the gain/loss the gov’t makes off of producing and selling the coins.

Clearly for any coin where the gov’t sells it for less than it costs to mint, the net social value is positive.

BUT we do at least know an optimal policy should include probably at least one or two coins where the gov’t is making a loss.

95 Bill December 18, 2017 at 7:23 pm

There is a great deal of psych and marketing literature on ending digits pricing:

“Psychological pricing (also price ending, charm pricing) is a pricing/marketing strategy based on the theory that certain prices have a psychological impact. Retail prices are often expressed as “odd prices”: a little less than a round number, e.g. $19.99 or £2.98. There’s evidence that consumers tend to perceive “odd prices” as being significantly lower than they actually are, tending to round to the next lowest monetary unit.[1] Thus, prices such as $1.99 are associated with spending $1 rather than $2. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points.” https://en.wikipedia.org/wiki/Psychological_pricing

Target ends in 9 and Walmart ends in 88 to signal that their prices are low.

96 Gordon Mohr December 18, 2017 at 7:42 pm

Austan Goolsbee had the best penny-retirement plan: re-base pennies to be worth 5¢. Described in NYT in 2007:


What I like about this plan is that if reaches a certain threshold of popularity/plausibility, some people will start hoarding pennies for the potential 500% return. Word of the problem with 1¢-pennies will spread with shortages. Early hoarders will become proselytizers for the rebasing, while everyone who has (or starts) a penny-jar will think, “why not?”

So, you may already be hodling in your pockets the next bitcoin.

97 ʕ•ᴥ•ʔ December 18, 2017 at 7:47 pm

I am going to repeat what many have said above, as an old joke goes, redundancy is the soul of the internet.

1. It has long been possible to price things below the smallest coinage. I am sure many of us remember stocks priced in eighths of a cent, or gasoline priced 29.9 cents per gallon.

2. All costs are totalled, and that includes the fractional ones described above.

3. It has long been a practice to round prices to the smallest coinage for cash payment, which has long been a penny, but could be a nickel, or a sixpence, or anything else.

4. When the same sale is paid electrically, it could stay a penny, or go to thousandths, who cares.

98 ʕ•ᴥ•ʔ December 18, 2017 at 7:52 pm

A bit of a senior moment there, 1/8 of a dollar, or 12.5 cents. Still sub-cent price.

99 ʕ•ᴥ•ʔ December 18, 2017 at 7:56 pm

And in case it wasn’t obvious, I don’t think we need pennies.

100 Boonton December 19, 2017 at 10:37 am

In terms of what we ‘need’ we should have at least one coin that the gov’t makes a loss on. Why? Because some transactions simply won’t happen rather than simply being rounded up or down. So the sum of the good of a coin is the profit/loss the gov’t makes by minting it plus the value of the marginal transactions the coin allows to happen.

So assuming nickles are relatively close to break even that does imply the penny is justified. However, we could just as easily replace the penny with a ‘bi-penny’ (worth two cents) or 3-cent piece.

101 entirelyuseless December 18, 2017 at 11:01 pm

“Pennies are useless” is not a reason to get rid of pennies. The smallest currency should be useless, so that the rounding off that happens with fractions of that smallest amount will not harm anyone.

102 Judah Benjamin Hur December 19, 2017 at 12:10 am

That’s what nickles or, frankly, dimes are for.

103 ʕ•ᴥ•ʔ December 19, 2017 at 10:46 am

Then why was a penny sufficient back when, inflation adjusted, it was worth a nickle?

Or how low do we have to go? At what further level of inflation is the nickle appropriate?

I suspect that many of you are just fixed in opinion. “Pennies Forever!”

104 Judah Benjamin Hur December 19, 2017 at 12:07 am

I used to collect Lincoln pennies in the 1970s, like so many other kids. I doubt that many kids today collect them, but I imagine there are a lot of people my generation or older have warm feelings for the penny. I still support abolishing the penny (and the dollar bill), but I’m convinced nostalgia is one of the reasons we’re stuck with it.

I also remember in 1975 my local 7-11 raised the price of a piece of Bazooka Joe bubble gum to 2 cents. So it’s been over 40 years since one could buy ANYTHING with one penny! I

105 msgkings December 19, 2017 at 2:16 am

Agree 100% (former penny collector here too…still remember the WWII era steel ones, that were gray not copper colored)

106 jcm December 19, 2017 at 5:38 am

No pennies for yonks in Australia and now most of us want to get rid of 5 cent pieces too…

Comments on this entry are closed.

Previous post:

Next post: