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Penny wise.

Byline: The Register-Guard

The Royal Canadian Mint announced recently that it will no longer distribute the penny, making the 5-cent piece the country's smallest-denomination coin. Canada's move is sure to be echoed by calls for the United States to do the same, and the proponents of eliminating the penny have some strong economic arguments on their side. Economics, however, seldom trumps politics and emotion. Pennies are likely to remain in American pickle jars, sofa cushions and cash registers for some time.

Proponents of a penniless currency point out that it costs the U.S. Mint 2.4 cents to make each penny. Producing 7 billion of them each year results in a loss of nearly $100 million.

Pennies cost not only money, but time - a study by the National Association of Convenience Stores and the Walgreen's drug store chain estimated that handling pennies adds 2 to 2.5 seconds to each cash transaction, which adds up to millions of hours. Getting rid of the penny and rounding costs to the nearest 5 cents would eliminate these costs.

Many of the same arguments are marshalled in favor of replacing the paper dollar with a coin, as Canada did in 1989. But just as the United States has resisted switching to longer-lasting, vending-machine friendly dollar coins, the American penny is likely to have a future.

Eliminating the penny would be a reminder of how deeply the value of American money has eroded over time. Fifty years ago, a penny was worth eight times what it is today. Eliminating the penny (or for that matter the nickel, which costs 11.2 cents to produce) would be an admission of defeat by the force of inflation. No president or Congress would want to raise that white flag, unless one of them could blame it on the other.

Eliminating the penny could, in fact, compound inflationary effects. A Penn State economist estimated in 2001 that if prices were rounded to the nearest nickel, between 60 percent and 93 percent of the rounding would go in one direction - up. The conclusion makes intuitive sense, because so many items, from gasoline to bananas, have prices that end in 9. Advocates of an end to the penny say that rounding would go in both directions because most transactions involve more than one item, and the addition of a sales tax pushes the cost of a 99-cent item above a dollar. The argument is unpersuasive to Oregonians, who pay no sales tax.

But there's another reason the penny will stay, at least for a while. The strongest political defenders of the penny have come from Illinois, the land of Abraham Lincoln, whose profile has graced the 1-cent coin since 1909. Guess which state the current president is from.
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Title Annotation:Editorials and Letters
Publication:The Register-Guard (Eugene, OR)
Date:Apr 9, 2012
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