The E-Sylum:  Volume 11, Number 12, March 23, 2008, Article 14


Jeff Kelley writes: "I must respectfully disagree with some
aspects of Dick Johnson’s latest commentary about eliminating
the cent.  He asserted that the introduction of steel cents
would drive all existing copper and zinc cents out of circulation
(and into Chinese melting pots) and that the Treasury would
then have to replace the 100 billion cents that he estimates
are currently in circulation.

"While I agree with that it is possible that the Chinese or
another rapidly industrializing nation (perhaps India) might
be inclined to melt down our cents for their metal content,
there are a few things to think about. First, replacing copper
cents with zinc cents did not lead to a wholesale smelting
of the older copper cents – they both circulated side by side
quite seamlessly despite the fact that the copper cents were
worth more than one cent and more than their zinc successor.
Second, the current prohibition on melting one cent coins
includes a prohibition against a person exporting more than
a certain amount of cents (and the limits are quite low –
somewhere in the hundreds, if I recall correctly.).  Lastly,
if all one cent coins disappeared tomorrow, the Mint would
not have to replace all those currently "in circulation"
simply because most do not actually circulate.  The vast
majority of cents sit in jars, cups, trays, piggy banks,
etc.  For many people, cents are essentially a single use
coin – they are issued as change at the store, and it may
be years before they re-enter the retail or banking system.

"As for suggestions that rounding odd amounts at the register
would make the cent obsolete, we don’t need legislation to
implement that process. If people want, they can ask cashiers
right now to round up their bill to the nearest nickel and
say "keep the change", or they can simply refuse to take the
odd pennies in change.

"As to the advisability of eliminating the cent, I am not
so sure the theory that makes it appear innocuous would become
reality for the consumer.  Eliminating the cent would require
that some rounding be done, and I have some first hand
experience with that.  I was living in Germany when the euro
replaced the mark, if there was any rounding to be done (and
there always was), the price was ALWAYS rounded upward.  I
had friends who actually bought into the idea that it would
somehow all even out for the consumer, that some prices would
be rounded up and some down, but that was predictably not
what happened.  It was foolish, after all, to expect that the
butcher would round his prices down in order to compensate
for the fact that the baker next door rounded his prices up.
I experienced exactly one instance where the Euro price
reflected an amount that was lower than the equivalent of the
former price in marks; that was a newspaper that had raised
its price in the months before the conversion so that it
could round down afterward.

"There is one important thing to think about when comparing
the United States to other countries, and that regards pricing
methodology.  While retailers in many other countries may make
use of certain familiar price points (.99, 1.99, etc.), it is
probably not as prevalent as it is in the US.  There is also
the critical issue of taxation – many other countries impost
a "VAT" (Value Added Tax) which is included in the stated
price of an item, not a sales tax that is added at the register
on top of the total.  Therefore, most items are priced such
that the price is a round number of some kind.  Retailers and
restaurants in many foreign countries have done this for years
as a way to simplify the payment process and reduce the need
for handling minor coins.  This approach would be problematic,
however, in any US jurisdiction that imposes a sales tax at
the register.

"Whether or not the cent has outlived its usefulness is
certainly a subject for serious debate, but it is important
to consider all of the ramifications to eliminating it."

Jeff adds: "There is one reason I can think of why replacing
copper and zinc cents with steel cents would create havoc:
the problem of expanding the tolerances for accepting cents
and other coins in stamp vending machines at the Post office
and coin counting machines at banks.  Currently, these devices
can be set to automatically reject any coin that has the
magnetic properties of steel (at my bank, Canadian quarters
don’t even make it down into the counting mechanism area –
they stick to the magnets built into the coin tray).  Once
we introduce steel into our coinage, it will dramatically
complicate the automated validation process for coins.
(Of course, at current exchange rates, Canadian coins don’t
represent a loss!)."

Martin Purdy of New Zealand writes: "I've heard of lots of
countries that have abolished their lowest denomination but
never any that have actually revalued their one-cent coins
to circulate as fives - if any country has, I'd love to have
the details since it would make a great quiz question.

"It certainly didn't happen here or in Australia, which
simply set a deadline beyond which 1c and 2c coins would
no longer be accepted in trade or given out as change.  The
same was done with our 5c coins in 2006 - they were simply
called in, not revalued.

"Velde's notion of revaluing all existing 1-cent coins to 5
cents sounds crazy - does he really want $1 billion (or
thereabouts) worth of "pennies" suddenly given a face value
of $5 billion by fiat?"

[Dick wrote that Australia and New Zealand had eliminated
their lowest denominations, but did not mention any country
which had actually rebased their low denomination coins.
There are many examples in history where countries have
rebased circulating coins, usually by counterstamping them
with a higher value. -Editor]


  Wayne Homren, Editor

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