Has Inflation Killed the Need for the Penny?

by Miranda Marquit · 7 comments

Not too long ago, Canada announced that it is getting rid of the penny. It’s not a complete end to the one-cent piece in Canada; the government will stop minting pennies in the fall, but they will still be legal tender. The main reason that the Canadian government made this decision is that it costs more than a penny to manufacture a penny.

For years, a debate has been present in Canada about what to do about the penny. There has also been a similar debate in the United States. However, Canada finally decided to act, and will no longer produce pennies. In the United States, the debate continues: Are pennies any good?

Inflation and Reduced Buying Power

I’m just old enough to remember being able to buy “penny candy” at the store. When I was the age my son is now, it was still possible to go into some stores and purchase certain kinds of candy — a Tootsie Roll or a LemonHead — for only a penny. Now, though, it’s extremely difficult to find such candies. Indeed, I can’t even remember the last time the penny was good for much of anything. It’s hard to find something for a dollar, much less convince a seller to cut prices to the level of a single cent.

With prices rising, the penny just seems outdated and useless. Candy costs considerably more than a penny, and there aren’t any other goods and services (that I can think of), that cost so little. Buying power has been eroded to the point that a penny is hardly worth the trouble it is to pick one up off the sidewalk.

With inflation continuing, and with the cost of the materials needed to make the penny rising along with other asset prices, it’s little surprise that the penny is coming under fire again. The fact that Canada has abolished its one-cent piece is likely to further fuel the flames.

Would Prices Need to Go Up Without a Penny?

While it wouldn’t be very surprising to see prices rise with the disappearing penny as an excuse, Canada’s model might temper some of this phenomenon, as the country isn’t getting rid of the ability to use the cent. The penny isn’t going to be minted, but electronic and check transactions won’t change. While some prices would go up to avoid giving change, there are some retailers that might let prices go a little lower.

If more people used their debit cards and credit cards, this also wouldn’t be much of an issue. It’s possible to pay $3.98 easily when you have a debit card. However, paying in cash could be problematic, since there wouldn’t be pennies to return in change. Consumers would have to prepare themselves for what’s coming by either hoarding pennies so that they can continue to use the pieces, or starting to do business with only those who barter, or who deal in cash only.

Whatever you decide to do, though, it’s important to keep in mind the effects of inflation. As prices rise, it will be interesting to see where we draw the currency line, and which denominations are changed.

So, what would you do if the United States got rid of the penny?

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{ 7 comments… read them below or add one }

Modest Money April 10, 2012 at 9:31 am

I think it’s just a matter of time before the US follows suit and stops minting the penny too. It just doesn’t make sense to keep it up with the costs involved and the decreasing value of a single cent. It’s just extra weight in our pockets. And yeah, I don’t even bother to pick up a penny from the ground anymore. The only real downside is the possible slight increase in prices. Since prices are going up each year anyway, what’s a few cents here and there?

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Financial Advice for Young Professionals April 10, 2012 at 11:59 am

Is this the first thing Canada has done right? Haha, but in all seriousness, get rid of the damn penny already. The penny is a microcosm of the entire government. It costs more than a penny to make a penny, so the government is losing money on every one! Even a 5 year old would know that’s a bad idea.

Personally, I refuse pennies, I don’t accept them on the rare occasion I do pay cash. My own form of personal protest :)

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Guest April 10, 2012 at 12:33 pm

Prices wouldn’t need to change at all.

Australia hasn’t had the penny for 20 years, their computers round down for .-1 and .-2 and up for .-3 and .-4. And if you’re buying multiple things, only a nut-job would figure out the cost to make sure they get a round down in their favor.

Living without pennies for a year and a half was great. It’s ridiculous to pay more than something is worth to mint it. We should stop printing $1 notes too, seeing as the coins are so much more cost efficient. There was nothing better than emptying out your change and realizing you had $20 in there from Australian $1 and $2 coins.

New Zealand hasn’t used pennies for 22 years and is phasing out their 5-cent pieces.

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Jules April 11, 2012 at 2:23 am

I would dance in the streets with joy.

Seriously–living in a country which doesn’t believe in 0.01-cent pieces has really opened my eyes to how much easier life is without those annoying bits of copper. It’s not that difficult.

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Marbella April 11, 2012 at 6:49 am

Here in Europe and Spain, we have 1 – 2 – 5 centimo which is totallt worthless, you can not buy some things for them. Many people like me refuses to accept them in the shops. It takes too long to list them and just as heavy to carry them to the bank.

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Munya April 13, 2012 at 4:06 am

In Zimbabwe we used to toss the wothless coin just as we received them. I wasn’t realizing what it means as we moved on. The rude awakening came when we wanted to toss the $2 dollar note but could not. The note had become useless as inflation gathers momentum. Just with this case, we have to be carefull where all these economies are going.

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Liz April 13, 2012 at 9:28 pm

In new zealand we haven’t had the 1 2 or 5¢ coins its great no more heavy purse to cart round. Prices are rounded up or down or just charged as is with electronic transactions.

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