Definitely retire the penny.

I would get rid of the nickel and dime, too. The smallest coinage would be the quarter. You'd want to issue $1, $2, and $5 coins instead of paper.

You should be able to do a load of laundry or buy a sandwich for a coin. Dollar bills in 2012 are ridiculous nostalgia items.

Pennies have become rather silly due to inflation, but I don't think quarters should be the lowest value denomination. That doesn't offer enough flexibility in pricing. There are certain things that people do everyday, like buying a cup of coffee, lunch, or bus passes. If the minimum increment in which businesses can undercut each other in price is 0.25, that would mean the minimum difference to those consumers would be $91.25 per year, which is a significant amount of money to most people. We could equally use the example of any low-cost item iterated over thousands or millions of purchases by a business. I think such an imprecise pricing mechanism would result in a lot of economic inefficiency. Businesses need to be able to fine-tune more than that. Nickels seem like the right denomination to serve that purpose, but maybe you could stretch it to dimes.

I guarantee you that the cost of handling such granular money alone, on both consumer and retailer sides, would be more than ultra-fine-tuned competition provides. Think of it this way:

$0.25 certainly isn't enough to sway a consumer's choice between two coffee shops if they prefer one over another. I see people buy $1 coffee over free coffee every day to avoid a stairway. I frequently walk three blocks to buy $3.75 coffee, despite free and $1 coffee availability in the building I work in. Consumers aren't nearly as cost-conscious or penny-pinching as we think.

I haven't heard of an increment in prices for bus fares of less than $0.25 ever... Handling more kinds of money actually adds overhead to retail, more than having ultra-granular currency provides.

Making a decision between two shops over anything less than a few dollars often costs more than just going with where you are... I've been poor; we counted in dollars, not cents.

Taking a date out for a few drinks, hamburgers, and a movie can cost $100 now. If you visit an inflation calculator, you can see that $0.25 jives almost exactly with what inflation has done to the dollar over the last 100 years. Four cents in 1910 = a dollar today. I think it's fair to say that we should rebalance our currency at intervals of either 100-years or two orders of magnitude.

Posted by Mangeek:

"Consumers aren't nearly as cost-conscious or penny-pinching as we think."

Well, some of us are. I think I am what the Spanish call "metallic".

Retire the penny? If I had a nickle for everytime I heard that!

I tried to post yesterday on this, and included a URL in my post, but it got canned. Go and google "1 billion in us $1 coins in storage" and research. Right now the Treasury is storing a billion dollars in US 1 dollar coins, while at the same time it has to take out of circulation 3 billion in dollar bills yearly. We should curtail the printing of the dollar bill and get those uncirculated dollar coins into the hands of consumers.

Mike, the only problem there is it seems consumers hate the $1 coin. Plus, if it's not something that people want to use, it's not something that makes sense economically. It costs a lot more to make a $1 coin than a paper $1 bill. It costs about six cents to make the paper money and about 10 times that to make the dollar coin.
At this point, it probably makes more sense to sell as many of the dollar coins as they can to collectors and then melt down the rest for use elsewhere.

"Consumers aren't nearly as cost-conscious or penny-pinching as we think."

Maybe for rich people like you. Check out the people standing in line at Mcdonalds or BK for the $1 value menu.
Yes you will see me there!

"Consumers aren't nearly as cost-conscious or penny-pinching as we think."

Probably true for some,if not many. Still some of us recall "mind the pennies and the pounds take care of themselves"

I consider a 10 cent difference in price at the supermarket all the time. If I'm buying 10 of something, then that's a dollar saved, and a dollar is no joke! That's a whole McChicken, or large McDonald's coffee if you prefer.

A large McDonalds's coffee is $1.08. Take pennies out of circulation and the price would be $1.10. How do consumers gain from this?

Only in the less enlightened states, Phil. Here in Virginia, the price is $1.05. In New Hampshire, $1.00 even.

Patrick,you mean a dime wasn't worth 10 cents when the dime was 90% silver?

I too consider $.10 differences at the supermarket all the time. They add up.

By using coupons and shopping those differences,by the Thanksgiving-Christmas season I can purchase turkeys,prime ribs and plenty of other wonderful items with what I've saved during the rest of the year.

One other thing that seems to fit here that wasn't mentioned in your post,Patrick.

Not all cents are created equal. Some are 95% copper,so their metal value is higher than those which are mostly zinc.

The tax foundation find those in NH paid the second highest property tax when compared to home value in the US. Va is awash in billions from federal handouts and defense contracts. Arlington, Va. receives 5.3 billion alone, dickweed.

Phil,
Aren't we paying more in production costs than the extra one to nine cents you MIGHT have to pay for your coffee?

Sigh.

Imagine if McDonalds didn't have to handle currency in anything under $0.25 increments. I can almost guarantee you that it would LOWER costs because labor (a big part of which is handling coinage) would be reduced.

"if it's not something that people want to use, it's not something that makes sense economically."

Patrick, we both know that plenty of things that make sense aren't taken up by users, even if they're cheaper and more convenient. People are 'sticky'. Just imagine if we added a state, I can guarantee you that a 51-star flag would be protested as if it were the Antichrist.

"It costs a lot more to make a $1 coin than a paper $1 bill. It costs about six cents to make the paper money and about 10 times that to make the dollar coin."

Coinage is more expensive t produce, BUT it's clearly been shown to be cheaper in the long run. Not only are the machines to handle it much simpler and more reliable, coins have lifetimes that can be decades, while paper money literally falls apart after a few years in circulation.

In any case, the cost to the government of producing curreny shouldn't be a factor here

"coffee is $1.08. Take pennies out of circulation and the price would be $1.10."

Studies have been done on this. The consumer actually sees lower prices more often than higher.

"mind the pennies and the pounds take care of themselves"
"I too consider $.10 differences at the supermarket all the time. They add up."

The time it takes to evaluate $0.10 differences and to go to an additional store probably outweigh the savings. Saving money is A Good Thing, and I do it all the time, but today's dollar is the new dime. Tiny price differences (like $0.10) add up to small savings. I value my own 'life' at around $15/hr. If it means spending another hour to visit a grocery to save $2, I'll just spend the $2. I typically do big enough shopping runs where it IS worth it to visit multiple stores, because I can save more than the costs the overhead incur.

As for me being rich... No such luck. I keep my COSTS low and freelance whenever I can, I don't waste time hunting for small savings. I've managed to average a 17% personal savings rate on a middle class salary, if that demonstrates the value of this idea.

"The time it takes to evaluate $0.10 differences and to go to an additional store probably outweigh the savings."

Who said anything about an additional store? The supermarket offers multiple brands in the same location and it takes virtually no additional time to evaluate the savings. For many basic products, e.g. ketchup, I just grab whatever is the cheapest, even if it's a 10 cent difference.

Phil - We get it - NH has high property taxes (although not much more than many places in RI). This is because it has rock bottom taxes in virtually every other area and an overall tax burden that is far lower than Rhode Island. I don't buy your "Federal Government subsidizing Virginia" argument either - all the states get Federal funds and if that's true, why are D.C. and Maryland both drowning in tax increases and running deficits like there's no tomorrow?

Max D

Pennies add up. Consumers would be paying more if pennies are taken out of circulation. There would be no more $any number.99 for instance. Production costs are jobs. Handling costs are jobs. The proposed meal tax has been described as "pennies on a pizza". Do you want it to be more than pennies? Some of you blow a gasket at the idea of paying even one more cent in taxes so don't begrudge me my $1.08 coffee. (In Rhode Island)

"Consumers would be paying more if pennies are taken out of circulation. There would be no more $any number.99 for instance."

There have been actual studies of this. It turns out that most of the $x.99 prices would DROP to $x.95. There's a reason so many things are $x.99, it's psychological, not economical.

I encourage folks to read up: en.wikipedia.org/wiki/Penny_debate_in_the_United_States

manGEEK

That makes no cents. I'm going to assume that your linked article is called a debate because there are at least two sides presented.
What would shellfish dealers do with no pennies in circulation? Yesterday the amount that one was paying fishermen was 11 cents for each littleneck. They brought in tens of thousands. One penny in pricing has an impact on their profits for the day. Same is true for the fisherman who brings the thousand to two thousand pieces to market. One penny makes a difference. How can that price be realistic if it could not be paid out for one unit. How could you buy or sell a littleneck if you could not make the change? The price for littlenecks vary depending on supply and demand from the low prices of 11 cents to highs of 17 or 18. Haven't seen 20 in years.

Phil, you don't see the flaw in that argument? I'm guessing you don't so let me ask you this. Do you have a 10th of a penny coin? If you don't, then how do you pay for gas? I always see the price is in 10ths of a cent, like $3.899 per gallon. So how does that work then? You're talking about an 11 cent clam and the clammers bringing thousands of them. It's the same thing as the 10th of a cent on gas. When something costs 11 cents and you bring in 2000 of them, it works out. When clammers are bringing in and selling one clam and looking for their 11 cents, let me know.

That's not an argument for keeping the penny.

"What would shellfish dealers do with no pennies in circulation? Yesterday the amount that one was paying fishermen was 11 cents for each littleneck. They brought in tens of thousands."

I think you answered your own question there. Prices would still be in dollars and cents, but there would be rounding to the nearest unit of the smallest denomination available, just like with gasoline. I don't think anyone showed up with three littlenecks to exchange.

I had an interesting conversation with someone who works as a private consultant for public transit payment systems. He said that the overhead of handling paper currency (difficult to handle via machines) and coinage (which is heavy and requires a lot of machinery to process different denominations) is a considerable expense, more than the ridiculous fees paid to credit card processors. Assuming the same is true of small busineeses, and you'd likely optimize trade by quite a bit by removing smaller denominations.