Congress aims to limit penny use through rounding system
WASHINGTON — They can be found collecting dust in jars, weighing down pockets, caught in sidewalk cracks and buried under sofa cushions.
Pennies, says Rep. Jim Kolbe, R-Ariz., are a “nuisance.” Not only that, but pennies now cost more than their face value to manufacture.
Kolbe introduced legislation Tuesday to “drastically” reduce the demand for the penny and modernize the currency system.
“Our currency and coinage policies are quite simply pound wise and penny foolish,” Kolbe said at a news conference. “So it’s time for us to say that the penny stops here.”
Under Kolbe’s legislation, cash transactions would be rounded to the nearest nickel. For example, a purchase totaling $4.98 would be rounded to $5 and $4.97 would be rounded to $4.95.
This rounding system would only apply to cash purchases. Credit card and electronic transfers would still be calculated to the cent.
Kolbe stressed that the system favors neither the consumer nor the retailer because the probability of rounding up or down is equal.
“The proof that nobody wants (pennies) can be found at the supermarket, where there are ‘leave a penny, take a penny’ dishes next to the cash registers,” said Francois Velde, a senior economist at the Federal Reserve Bank of Chicago and co-author of The Big Problem of Small Change.
Velde also pointed out that for someone earning median wage, it takes only a few seconds to earn a penny.
“So a penny is worth a few seconds of your time, at most,” he said. “You probably waste more time fumbling for pennies at the cash register.”
The U.S. Mint projects that by the end of the year, it will cost 1.4 cents to manufacture one penny - up from 0.97 cents last year and 0.8 cents in 2001.
Previously, the Mint made a profit from coin manufacturing. The Federal Reserve purchases the coins from the Mint and distributes them to banks at face value. If the face value is more than the production cost, the Mint makes money.
The Mint reported that the annual cost to produce pennies could exceed revenues by around $20 million.
“That is the worst kind of waste because there is no reason for it,” Kolbe said.
The increased cost is the result of higher zinc and copper prices. Pennies are currently made out of zinc with a light copper coating.
Kolbe’s Currency Overhaul for an Industrious Nation (COIN) Act also includes the eventual replacement of the $1 note with a $1 coin.
A hearing on the bill is scheduled for Wednesday by the House Financial Services Committee.
(via Oxford Press)