Saturday, December 3, 2011

Spare Change: No pennies, no nickels, no problem?

We have a change basket full of pennies at home. Even with that basket full of pennies, it isn't yet worth the hassle to bring the basket to the bank for the pennies alone -- the accumulation of nickels, quarters and times will probably make it worth the trip. In light of our basket of coins, this (old) argument by Greg Mankiw makes a lot of sense:
Indeed, I would advocate this even if the penny were free to manufacture, as I argued earlier this year in the Wall Street Journal. The purpose of the monetary system is to facilitate exchange. The penny no longer serves that purpose. When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful. It is just wasting peoples' time--the economy's most valuable resource. The fact that the penny is costly to make only adds force to the argument.

Maybe we should get rid of the nickel, too. We can then round all prices to one decimal rather than two.
There are several issues with this no penny/ no nickel scheme. For example, how do you round with a percentage sales tax? Also, what do you do with all the quarters if prices are rounded to the nearest 10 cent increments? Freakonomics had an interesting related discussion a couple of years ago.

(HT: Greg Mankiw's post today)

1 comment:

  1. Someone has found how to get rid of the problem


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