A Penny For Your Thoughts

Why do we have pennies?

The US Mint loses money on every penny they stamp. It now costs about two cents to make one. The Mint has changed the penny’s composition five times since the coin was introduced in 1793, most in 1982. But because of inflation, a nickel is now worth what a penny was worth1972.

In fact, we’ve never had a coin that was worth so little. The last time we eliminated a coin—the half-cent, in 1857—it was worth 11 cents in today’s terms. And pennies aren’t good for much. You can’t use them in vending machines or parking meters, and you generally can’t deliver them in bulk. Often, they just end up sitting in jars or get thrown away—where they end up as toxic waste. Nickel is a heavy metal. Indeed, all these factors led the Canadian Government to discontinue the Canadian cent last year. Up there, charge-card customers pay the exact price, while folks using cash pay a rounded amount. They decided that nostalgia is not a good reason for the government to lose millions of dollars making pennies.

But don’t underestimate the power of the zinc lobby and other industry groups. They’ll cite the benefits to charities of penny-drives or the difficulty of rounding for consumers (really?!). And folks fear the slippery-slope: nickels cost ten cents to make, are we going to eliminate them, too?

It won’t happen soon, but I think eventually the penny will go the way of the US half-cent and half-dime. In spite of special interests, Congress will eventually get around to doing the rational thing. After all, losing money by minting coins just doesn’t make sense.

Douglas R. Tengdin, CFA

Chief Investment Officer

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