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The death of the Penny in the USA. That is, the effects of expansionary economic policies

US penny

Zinc is starting to cost too much for the US due to inflation and this risks leading to the end of the smallest coin in the US. The U.S. penny, which is made mostly of zinc, costs about three cents to make and is worth only a penny according to the federal government . This is the opposite of what has happened historically. Typically, governments produce money that is worth much more than it costs to produce. Imagine printing a hundred dollar bill that costs much less than a hundred dollars in materials and printing costs. The resulting profit is called seigniorage. With pennies, the U.S. government is practicing reverse seigniorage, pricing the metal at a third of its value.

This loss of money resulting from the production of pennies is one of the arguments in favor of abolishing the US penny. There are other arguments against the penny, such as the claim that its value is so low compared to the typical American wage that it makes no sense to name prices in pennies; Would anyone argue that the United States needs a coin worth a halfpenny?

In reality, the United States had a half-cent coin that was abolished in 1857 because it was worth too little . A half cent in 1857 would be worth about 18 cents today. This value is higher not only than that of the penny, but also that of the nickel (5 cents) and the dime (10 cents). Not only that: a dollar from 1857 had the purchasing power of 35 dollars today. Yet the penny still exists.

Of course, there are arguments in favor of keeping the penny. Perhaps the penny is useful because it supports the zinc mining industry and its American workers. Perhaps we should be wary of government moves to phase out the penny, because it could be the first step towards a cashless economy. Or perhaps abandoning the penny would cause companies to round up prices, hurting consumers. No more products at 1.99 or 5.99… you round up to 2 and 6 and off you go.

This is actually the only serious reason that opposes the abolition of the dollar cent, of the penny, at this time. it is of a political nature: abolishing the penny would mean that the government's policies against inflation have not been successful and that the currency is effectively no longer worth anything. Not only would the government be implicated in the failure, but also the Federal Reserve, which guides monetary policy.

The rampant inflation since Biden's inflation is so extreme that it is impossible to ignore the toll it has inflicted on the American people. But in many years, when inflation is lower, it's harder to notice. Coins are a part of American culture, from slot machines that dispense coins to elementary school students learning to add and subtract with pennies, nickels and quarters.

When stores stop accepting coins, when banks stop stocking rolls of coins, or when the federal government throws in the towel on pennies, more Americans will realize that the rest of fiat currency is following the same path of constant devaluation? It would be enough to take a look at the loose change, the sofas and the pockets to be viscerally reminded of the reality of inflation.


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The article The Death of the Penny in the USA. That is, the effects of expansionary economic policies come from Economic Scenarios .


This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-morte-del-penny-negli-usa-ovvero-gli-effetti-delle-politiche-economiche-espansive/ on Sat, 02 Mar 2024 09:00:47 +0000.