13 February 2007

Coin issues

Yahoo! ran this article about the newest attempt to introduce the dollar coin into circulation in the U.S. Much of the article discusses the resistance to this and other attempts in the past. They cite a poll which revealed that three-fourths of those polled are against replacing the dollar bill.
In other words, three-fourths of those polled are crazy. In Australia, we have not only a dollar coin, but also a two dollar coin, and it is fantastic (see all the coins at the mint's website). You know how when you reach in your pocket and if you're lucky, you have about $1.62? I've got eight or nine dollars. Change is actually worth something. And you know how you pull out your thick wallet only to find it is stuffed with singles? Australia's smallest note is the five.
Even though the dollar coin has failed before, there is hope that it will catch on this time. This optimism is based on the fact that the new coin will pay tribute to each of the presidents, in a series similar to the 50 State Quarters. I hope they are correct, but I fear it is more likely that they may find their way into collections, but not into circulation.
The other coin news being kicked around is getting rid of the penny. Again, Australia is one step ahead of you: if you looked at the mint's website, you may have noticed there is no penny. All cash transactions are rounded to the nearest five cents, and yes, they round down if that is the nearest five. In the long run, it all breaks even. On the Wikipedia page I linked to, an economics professor is cited who says that according to his simulations, eliminating the penny would cost Americans a $600 million 'rounding tax'. However, this breaks down to two dollars per person. If this is the worst case scenario, I consider it well worth two dollars a year to not carry around a pocket full of pennies every day. By the way, another study based on real transactions showed no so-called 'rounding tax'.
If personal comfort is not enough to convince you, how about this: the penny may actually cost you more in taxes. It actually costs more than a penny to make a penny: 1.4 cents. Some estimates increase this figure to over three cents if you include distribution. If the government loses money each time it mints a penny, three guesses who eventually absorbs that loss. Nickels aren't worth their cost, either, which is currently at 5.5 cents.
It's gotten so bad that the U.S. Mint has actually had to warn against melting down pennies and nickels. If we have gotten to the point that it is more economically viable to melt your spare change down than keep it in your piggy bank, then it's time to let it go.

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