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.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.
Maybe we should get rid of the nickel, too. We can then round all prices to one decimal rather than two.
(HT: Greg Mankiw's post today)