1. Eliminating the US Penny: An Updated Economic Study Jordon Grimm

2. Introduction How is Money Made? Why does Currency Denomination Matter? Recent Legislation

3. Previous Literature Chen (1976) – Removal of demanded units of currency will be inflationary Lombra (2001) – US penny should remain in circulation Chande & Fisher (2003) – Canadian penny should be eliminated

4. Plan of Analysis Two Questions must be answered – 1. Does the penny need to be eliminated? – 2. If so, what happens after it is removed? If satisfactory answers for both questions are found, then the penny should be taken out of circulation.

5. Why Remove the Penny? Inflation  Diminishing value Negative Seigniorage for the US Mint

6. Seigniorage Table 1 (all monetary figures in $) Year Pennies minted (bi.) Material cost/unit Admin/Trans port to Fed/ Other Cost per unit Per-Unit Cost of productionTotal CostRevenuesProfit 200112.77300.00810.00010.00821,047,38,600127,730,00022,991,400 20027.65120.00850.00040.008968,095,68076,512,0008,416,320 20036.29600.00930.00050.009861,700,80062,960,0001,259,200 20047.13000.0090.00030.009366,309,00071,300,0004,991,000 20057.70000.01350.00040.0139107,030,00077,000,000-30,030,000 (Source: US Mint Annual Reports)

7. Why Remove the Penny? International Comparison CountryCurrency Exchange Rate vs USD Smallest Denomination (Fraction of main unit) Smallest Denom. Per US Penny CanadaCan. Dollar1.1058Penny (1/100)1.105 Eurozone*Euro0.7938Cent (1/100)0.794 UKPound Sterling0.5427Penny (1/100)0.543 JapanYen114.73Yen (1/1)1.147 South KoreaWon962.910 Won (10/1)**0.9629 BrazilReal2.2925 Cent (1/20)***0.4584 IndiaRupee45.8225 paise (1/4)1.833 MexicoPeso11.4385 Cent (1/20)2.288 AustrailiaAus. Dollar1.34995 Cent (1/20)0.27 (Source: Wikipedia – Currency) * Eurozone includes France, Germany, Italy, Spain ** 1 and 5 won coins extremely rare; prices are rounded to the nearest 10 won in S. Korea *** 1 cent removed from circulation November 2005

8. Why Keep the Penny? Inflationary Effect on Economy Impact on Charities Historical Significance Questions about cash transactions post- elimination

9. Post-Elimination Most popular plan: Rounding Scheme – Cash transactions only – After sales tax

10. Debate over Rounding Lombra (2001) : Rounding hurts consumers by potentially $600m/yr Chande & Fisher (2003) : When sales tax is considered, net effect of rounding approaches zero

11. Effect of Rounding

12. Case Study New Zealand – Removed 1- and 2-cent coinage in 1990 – No Evidence of Resulting Inflationary Effects – Many Firms Favored Consumers in Rounding

13. Conclusion Sufficient Arguments for Removing the Penny Rounding Scheme will have Little or No Negative Economic Impact Therefore, the Penny should be eliminated.