The Penny and Currency

Why do we have pennies? Here in the United States there exists a denomination of coin that is worth less than the impure copper it is made from. Obviously those enterprising enough to figure this out, and just devious enough to break laws nobody cares about, have already started melting pennies down and selling the product for a profit.

To reach a more practical point, why do we even have change? Why bother with all this nickels and dimes and quarters nonsense?  If you want to use less than a whole dollar, then simply have smaller bills.  A paper bill weighs less, and consumes less space than a coin of a fraction of its value.  You would think that a smart currency would have the paper represent the less valuable denominations, and the metal the more valuable ones. But no. In any case, the modern economy is built so solidly upon faith money that the physical metal is completely unnecessary, a relic from the days that the metal was actually valuable and you were quite literally trading a specific quantity of it for a good or service. In fact, in modern times the coin has a deleterious effect on the economy. How many people actually spend their change? How many lose their coins or simply allow them to collect in sofas or nooks and crannies?  The definition of a healthier economy is one where more money is moving around, the common position of economic slowdown being a state where everybody is choosing to conserve their assets because the field seems to risky at the time. But every time a customer buys an item that doesn’t come out even, they are saddled with coins that complicate the situation because they are annoying to get rid of. Pennies.org (that exists?) says the US Mint produced 8.7 billion pennies this year, or $87 million. I would bet a dollar to a donut that the vast majority of that coinage will be involved in at most three transactions in its average of about 25 years of life (usmint.gov).  One; from the mint to a company. Two; from the company to a customer paying in cash. Three; it’s 25 years, so it must change hands at least one more time, whether from being saved up and used in place of cash, or fed into an old vending machine- current ones won’t accept pennies.

So that’s $8.7 million that isn’t going to move around too much. But there are also, of course, plenty of pennies that were not minted this year that could easily have been made in cash instead and be flowing freely as the dollar. Penny.org again says the US Mint has produced over 288.7 billion pennies to date.  Let’s call it 290 billion, which translates into $290 million in cash.  And most of those have existed in limbo for decades, lost or stashed.  Ignoring other coins completely (who uses nickels?  Dimes?), that’s a lot of money.

So what’s the alternative? The obvious, though perhaps ridiculous solution is to simply use bills for small denominations of money.  You could have a one cent bill as easily as a coin, and it has the decided advantage that it would be worth more than the paper it’s printed on.  Though that’s still a waste of time to use a denomination so small. I don’t care for 99 cent purchases just because it’s a sleazy but ubiquitous psychological trick to make you think it costs less when really it’s only a penny. Interestingly, despite knowing better, it certainly still has a psychological effect on me. It doesn’t matter if you are aware that they are trying to fool you, it still seems like a larger difference than a penny. So just print whatever denominations are useful. I am inclined towards a 10 cent bill being the smallest available denomination, utilized as $0.1 instead of all this cents stuff.

Second, more interestingly futuristic, alternative. A cashless economy. The real problem with such a system is that most people are accustomed to the current mode of credit use where the card is for taking point-of-purchase loans. While profitable for the card company, this is an economic lunacy on par with shooting those who buy candy. “Would you like a hot dog?” “Sure, I’ll take a loan.” Egad! Loans are great for capital management, banks, investment, and all that good stuff. But truly there is no call to be taking out loans every other hour. A debit card embodies one aspect of the necessary functionality for a universal cash card, but lacks the others. The first requisite element is two-way transfer. You need to be able to use your card, point of purchase, to either spend or acquire money. The card then becomes a slim wallet containing as much money as you happen to want on hand.  Provided you have it, at least. Though you could conceivably set it up to take out loans on demand, so it acts like a credit card when you want (if this gets rolling, loans will be deviously arrayed, watch it). Secondly, the card needs to have its own contact mechanism. That is to say that you can’t need to have a cash register swipe machine present at every transaction. Whether this is by wireless network, contact through your cell phone, or whatever, the mode doesn’t really matter. The card itself needs to have the functionality needed to make any transfers the bearer desires. And lastly, sufficiently advanced security such that a card-user can be quite sure that the money they are carrying in their virtual wallet is more secure than cash they might be carrying in a physical wallet. A combination of factors such as fingerprint verification, proximity RFID tags, and conventional bank methods would mean a mugger would be quite simply out of luck. A cashless economy gets that extra little oomph that is currently lost simply to stupid currency flaws.

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