Today I read that in the US you can make any amount of change between $0.01 and $0.99c using 10 coins. This was written to minimise the amount of change carried by a person and also to reduce the amount of change a person may have if they have accumulated a lot and want to get rid of it.
The coins are:
3 x quarters
1 x dime
2 x nickels
4 x pennies
Now I’m no pro regarding American coinage, but could you not obtain the same thing using 9 coins?
1 x half-dollar
1 x quarter
1 x dime
2 x nickels
4 x pennies
You Americans may not have a half-dollar coin though, I’m not sure. Regardless of my pedantry, this is not the point of this entry and nor is the fact that us Europeans can go 2 better (as always, huh?) by using one less coin and also making anything up to 1.10 using the following coinage (this works in both GBP and EUR as we have the same denominations). The following are in GBP pence (£0.01) or EUR cents (€0.01):
1 x 50
2 x 20
1 x 10
1 x 5
2 x 2
1 x 1
This got me thinking about low denomination change, specifically the penny. For starters, I only recently found out that America has a penny – it’s the common name for 1c! I found this out in November 2005 when playing Pictionary with a guy from Woodstock when I was in Prague. Strange place to learn that, huh?
So, let’s get on-topic then, shall we? I was thinking: is the penny worth the hassle? It was well documented a while back in the UK that the metal cost of a penny is fluctuating, in accordance with inflation, around the actual value of a penny – not taking into account the production and transportation costs. So essentially the Royal Mint is spending more than a penny producing a penny! However, the penny is now made from copper-plated steel and as such, production price is lower.
Let’s now consider what are known as ‘micropayments’ and also payments where pennies are included. Is the cost of the physical handling, counting and transporting of pennies (transaction costs) greater than a penny per penny spent? Is it not only the Royal Mint losing money on every penny produced, but the entire country?
With the average UK wage being £9.56/hour, it takes just under 4 seconds to earn a penny. If we assume that every transaction involving a one pence piece takes an extra half-second to complete, then for the retail trade it is understood that £75m (£75,000,000) of employees time is lost annually on handling pennies.
Consider a few more facts:
- the majority of vending machines in the UK do not accept pennies;
- retail stores in the UK pay more for pennies than they are worth (£1 of pennies costs a company approximately £1.10);
- the penny is not legal tender in the UK for amounts greater than £0.20 (stamps are not legal tender at all, and is, in fact, just a myth);
- hundreds of thousands of pennies goes missing every year due to ‘collectors’ who hoard pennies and other small change in jars to exchange with banks (but never do!).
But would fading out the use of pennies in the UK, Europe or even America save money? There are many reasons to keep the penny – especially for consumers. Classic arguments are:
- without the penny, prices will be rounded-up (£2.00 rather than £1.99) and this will cost the consumers millions per annum and consumer confidence will wane, with people believing their money will (rightly) not go as far;
- charities depend on ‘small change donations’ which amount to tens of millions every year. With the removal of the penny, people will be less reluctant to give their change to charities as it won’t be as ‘small’ as it was, causing unfathomable harm to charity institutions;
- the two pence piece (£0.02) is worth twice as much as the penny, but actually contains slightly more than twice the material, so the increased demand for small change will actually cost more with the increase in production of the 2p piece.
- the above increase in demand will also effect the higher valued change-coins which are all made out of cupro-nickel which actually costs more than the copper-plated steel the penny is made of (a 10p piece contains 13p worth of cupro-nickel) which would be even less efficient!
Should the penny be scrapped? Be damned if I know!
(For the British among us: did you know that Americans do not use the plural ‘pence’, and instead say “two pennies” rather than “two pence”?)
(Facts all obtained from the Office of National Statistics)