Monday, October 12, 2015

Open Letter Concerning the Elimination of Small Value Currency

This is an open letter addressed to members of the House, Senate and Congress.

It is time to properly address the issue that is small value currency in circulation.  It is the opinion of this author, and likely the opinion of a significant portion of the constituency of every district in the United States of America, that coinage with small face values is no longer relevant to modern society.  In addition to being a burdensome device of transaction, Pennies have become a useless monetary instrument.  To a lesser extent, Nickels and Dimes also fall into this category, and I shall argue thence that it may also be appropriate to eliminate this coinage henceforth from circulation.  In conjunction with this, I will also attempt to recommend a simpler sales tax solution which will also simplify retail processes and eliminate lost value to the economy.

Wherefore, in the course of common transactions, time savings can be realized with the elimination of Pennies specifically, and Nickels and Dimes more generally.  For example, a teller who makes minimum wage (rounded here to $8 per hour), is typically earning around 0.3 cents per second to make change.  A penny's cost to produce is around 1.8 cents per unit.  Ergo, a time savings of one second in the change-making stage is a 2-3 cent savings.  Considering that the average transaction will likely have 2 pennies, it costs twice as much to handle those pennies than those pennies are actually worth.  This is a net-loss of spending power over time.  

Related to this in the interest of simplifying sales taxation, would be to implement a system similar to those in other jurisdictions around the world, whereby taxes are figured into the total cost of the item, rather than being supplemental.  The European Value-Added Tax (commonly referred to as the VAT), for example, is included in the price of the good as is common to their retail.  The creation of a standardization here would be logical.  For example, a sales tax rate of 8% on an item that costs $1.00 would bring the total to the consumer to $1.08.  An item under the proposed bundling would simply cost $1.08.  An item in an economy in which pennies have been removed would simply cost $1.10.  In this way, change is much simpler to produce (no nickles nor pennies need be counted and handled) and is easily calculated by the average layman simply.  Rounding everything to the nearest quarter further simplifies this.  The minimum number of coins required to change any transaction under $1.00 is ten (three quarters, two dimes, a nickel and four pennies).  Eliminating the penny reduces this number to six (three quarters, two dimes and a nickel), and eliminating the nickel brings the total to six (four dimes and two quarters), and eliminating dimes brings this total to three (three quarters).

Wherefore, there is historical context for the elimination of coins whose life has run its course.  The elimination of the half-penny seven score and three years ago, was at a time when that coin had more purchasing power than a dime does today.  This means that we currently entertain three coins which have a value lower than the last coinage face value the United States ceased production of.  Apart from speeding up transactions, this allows for a rather large cost savings for resources we could allocate elsewhere. Similarly, there is historical precedent for elimination of coins such as the three-cent nickel, without regard to face value versus production cost.  

Furthermore, a penny is worth much less today than a mill (1/10 cent) was worth when the half-penny was removed.  Similarly, most people are completely ignorant of the same kind of rounding when it applies to the mill on the price of their gasoline or electricity.  There is absolutely no call to bring about a mill coin, for example, to ensure that mills are not rounded to the nearest cent.  In this regard, rounding to the nearest dime or quarter seems perfectly reasonable, and is a logical reason to institute the decommissioning of all coinage with a face value lower than 25 cents.

Related to this is the fact that a dollar coin costs less than one cent further to produce than a nickel.  Eliminating small face value coinage would encourage more use of dollar and half-dollar coins.  If a person has more room for carrying larger currency, it's likely a person would be more prone to use it.  Similarly, coins are more durable than paper money, and the ability to replace dollar bills with dollar coins (and improvement thereof the ease of use) gives us a currency base that lasts quite a bit longer and doesn't need as much upkeep.  This means a long-term savings that could be significant.
Wherefore, there is the simple matter of volume and mass.  Five pennies is more massive than a nickel, and five nickles more massive than a quarter.  Dime are approximately the same value per gram as a quarter.  Pennies accumulate easily but are nearly worthless when compared to other denominations of coinage.  When compared by mass or weight, pennies are exceptionally poor performers.  A pound of pennies is roughly $1.50.  By comparison, a pound of quarters or dimes is approximately $20.

With these sort of numbers in mind, let's move to the monthly figures of coins produces for 2015.  Approximately 7,246,500,000 pennies are produced each month.  This gives us a weight of around 48 million pounds of pennies, at a face value of around 72.5 million dollars, which cost us around 145 million dollars to produce.  Let's compare that to the quarters production.  Around 2,463,830,000 quarters are produced each month, with a weight of around 31 million pounds, and a face value of around $615 million, which cost us around $221 million to make.  Twice the weight of pennies, around 15% of the face value.  This is simply a losing proposition.

Furthermore, this means it takes roughly an additional 50% more fuel to move those pennies around, at minimum.  10 million tons of freight per month is a lot of energy to expend for something we're losing value on every time we handle it.

Therefore I resolve that perhaps it's time we look more seriously at decommissioning the penny, and perhaps even the nickel and dime.  It's time to stop wasting our time and energy on something that has such little value today.  This would also be an excellent opportunity to re-introduce a more robust dollar coin, as well as reintroducing the Eagle and Double Eagle denominations ($10 coin and $20 coin, respectively). In the short term, this may cause some confusion, but we live in an age where that confusion can be almost completely mitigated, nearly immediately.  

I thank you for your time and your consideration on this issue.

A concerned citizen