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Mr_Norris_LKNS's Blog

11 Feb 2019

My Two Cents... or two nickels... or two dimes...

Coins | Mr_Norris_LKNS

Every year there seems to be more and more talk about getting rid of the US One Cent coin.  The arguments are plentiful:  "Nothing costs a penny anymore"... "Nobody uses them"... "They cost more than their face value to make"... "They are a waste of money, time, and effort"... etc.  Now that talk has expanded to include nickels.  Some people are even railing against using physical money altogether.  "Nobody carries cash anymore"... "It's to easy to counterfeit with modern technology"... "Everything is going digital"... etc.  In the numismatic hobby we are already writing and reading articles preparing for the day when physical money is no longer used.

I am against getting rid of physical money for a host of reasons, most of which have little to do with our hobby; but obviously getting rid of it would definitely affect the hobby.

No new true coins or currency would enter the market each year.  This would affect collectors, limiting their activities to items of the past, with nothing new to anticipate.  This would also impact the entire support structure for numismatics, from NGC and other third-party grading services who would have no influx of brand new objects as people rush to get one slabbed in the highest mint state possible, to publishers of collector guides who would have fewer and fewer updates to make (hence selling fewer revised editions), to manufacturers of storage materials such as coin capsules and currency sleeves, to retailers who will sell fewer accessories for the new items that would normally come out each year.  All of that would in turn affect the collectors even more, as those companies rely on a certain amount of new business each year to stay profitable and operational.  With nothing new on the market, grading services might be busy for awhile grading older items as collectors shift interests; but may not be busy enough to keep everyone on staff.  Dedicated coin shops, as well as manufacturers and publishers of collecting accessories, would have to adjust their business models to stay open.  Those on the margins may fold.  All of this results in fewer goods and services available to support the collector; this may take a lot of the casual ones out of the market.

Prices for older coins may get a boost in the short term as existing collectors redirect their hobby money from new products into older ones and demand increases.  However, keeping the hobby alive requires new collectors entering the market.  New collectors don't usually jump into the hobby by buying a high-grade 1877 Indian Head Cent.  They usually start off with something smaller, or get into affordable series collecting.  Many like "shiny things" like mint sets and commemoratives of their favorite subjects, and many like the "latest and greatest".  If there isn't a continuous supply of "shiny new things" from the Mint each year, some of those would wonder "why would I pay so much for a dirty, tarnished, worn-out old coin?" and move on to other hobbies before they have the chance to learn about rarity factors such as mintage numbers and history.  As new collectors get harder to attract, prices drop... as we've seen in recent times.  Collectors rejoice when they can finally afford something long out of reach of their budget; but investors do not rejoice.  High prices are a reflection of demand.  Demand is a reflection of opportunity to make a profit.  Without profit, people cannot afford to invest their time and money into an industry just to keep others happy; they have to eat, pay mortgages, and save for retirement themselves.  Without investment and effort, the end beneficiary, the collector, has less available to support that hobby.

Okay, now for my non-numismatic arguments.

"Nobody uses cash anymore"... is flat out not true.  While electronic transfers of wealth are more and more prevalent, cash is still king (and preferred) for small transactions under $10, and significantly still used up through $25.  And lots of daily transactions are still under those thresholds.  And the more identity theft and card fraud occurs, the more people rethink using plastic when it's not absolutely necessary.  At least for now.

Let's say we got rid of the cent, because "nothing costs a cent anymore", and now the nickel is the lowest denomination.  Now everything is priced at amounts divisible by 5.  Prices go up a bit because the wholesale prices distributors charge retailers has to go up a bit, and the manufacturers' prices has to go up a bit, and the raw materials suppliers' prices have to go up a bit.  But it's OK, because now the nickel is essentially the new penny, right?  Well, what then will keep people from eventually treating nickels like pennies?  "Nothing costs a nickel anymore"... "They cost more than their face value to make"... then dimes, etc., until we got rid of everything less than a dollar? 

Don't believe that would happen?  Check out Japanese coinage from the 1800s until now.  They decimalized in the 1800s (not a bad thing to do) and came up with the rin, sen, and yen.  As the value of the yen on the world market went down over time, the rin, 1/1000th of a yen, eventually disappeared.  The sen, 1/100th of a yen, also disappeared.  "Nothing costs a rin or a sen anymore..."  That left the yen, their main denomination like dollars are to the US, their lowest denomination.  Today, 1 yen coins, once 24 grams of silver and equal to the American silver dollar back in 1871, are currently aluminum coins slightly larger than, and worth 10% less than, one US cent.  To buy a $30,000.00 car today, you would have to pay over 3.3 million yen.  That's like saying the main US denomination is the cent, not the dollar.  Hey Americans, how would you like everything to be priced in cents?  "How much for this box of cereal?"  "425."  "New sneakers?"  "10,000."  "How much for this car?" "3 million."  "Oh.  How many nickels is that?"  "600,000."  Seems awkward to me, but maybe we'd get used to it.  It's a good thing we're using computers more than pens to do our accounting or we'd run out of ink 100 times faster.

What about the argument "they cost more to make than their face value."  This is true, they do.  But why is that, and does it even matter?

Prices of metals sometimes go up.  Some of that is due to the demand for the metals going up (like when China's economy started taking off and they needed a lot of copper wiring for new factories... they couldn't buy copper fast enough so prices on remaining stockpiles and mining futures went up).  Some of that is due to the demand for our currency going down (like when we print more dollars than we should and make too much of it available, or when the interest rates on borrowing it are very low and it's too easy to get, or when our economy is weak and other countries don't need to exchange their currencies for ours to buy our stuff).  But prices of metals also sometimes go down, when supply increases and/or demand falls, or the strength of our dollar rebounds.  But that doesn't necessarily mean they'll fall to the point where making our cents and nickels costs less than their face value.

Does it matter if cents and nickels cost more than face value?  I don't think so.  Here's why:

Coins facilitate small-scale commerce.  How many of us, when times are hard, whether due to a poor economy, or an income loss, or a lot of unforeseen expenses, refer to those times of strict budgeting as "counting our pennies"?  Guess what:  eliminating smaller fractions of the dollar results in a negative impact on those who can afford it the least.  Price shopping and coupon cutting even to save a few cents here and there can add up, and make a real difference to someone with tight finances... including young people.  How many of us were making as much as our parents when we were kids?  On average, kids are "poor" compared to adults.  Yet if kids weren't important to our economy, would there be so much gum, candy, and cheap trinket toys available in checkout aisles?  Kids need small economies to learn the value of money.  Parents can't always lavish large amounts of money on kids in order to do that... so small change helps kids start learning to save money and be careful on spending it... and parents are usually more willing to spend small change on their kids in the checkout aisle.  Even kids who get banknotes to spend benefit from receiving change from those spent banknotes, because they can save their small change to make another purchase.  So the impact on our economy made by small-change purchases by small-income persons (like kids) can be significant... to the point that the cost of making the coins is insignificant.  Not to mention that banknotes, from $1 to $100, all cost between 5 and 15 cents each to make.  So the money "lost" on making coins is more than "made up" on making banknotes. 

A coin does not vaporize the instant it is first spent.  It gets used and reused and reused.  A coin can be reused many, many more times than a banknote.  Banknotes wear twice to six times faster than coins, between 5 and 15 years for banknotes on average (https://www.federalreserve.gov/faqs/), compared to 30 years on average for coins (per a 2011 Government Accounting Office report).  You are much more likely to find a 50-year-old cent or nickel in your change than a 50-year-old banknote of any denomination.

But let's say the government was going broke over the cost of making coins.  (I'm sorry, I had to pause for a few minutes while I laughed uncontrollably... I think the cost of making coins is the least of our fiscal worries.)  Instead of getting rid of coins, whether all at once or one denomination at a time... wouldn't it seem better to change our policies where both our economy and our currency were strong enough that these denominations were meaningful again?  Strengthen the dollar so that copper, zinc, nickel, and even silver and gold are more affordable, because a dollar will buy more of these metals-- and other products-- than they currently do.  I'd rather see that happen, than get rid of the coins.

Comments

Kepi

Level 6

America loves its cents and dollars...no changes coming that I can see. Good blog!

Sir Guardian

Level 2

I can only speak for myself on this topic. I am new to Numismatic field, but have always had passion for old things. Like most, I began collecting coins with my Dad and he would tell the stories of what was going on at that time in History. I think the difference between the US and other countries may be "we" are chasing History... with passion. Others are chasing the "dollar" as well as convenience. If one is collecting for the dollar... this is all you will ever have, but for those who are collecting for the History... the stories are "priceless". Here is an example: I picked up 2 cent pc 1865, learned that the 3cent pc replaced it due to copper shortage. Then I learned that even the 3 cent was being horded and they had to issue a 3 cent Fractional note (which I'm looking at). things like this is what has brought all of this into this field. Funny, I'm in Michigan and just started a collection for CAN coins... just because.

Instead of having a penny why not mint a two and a half-cent coin with the same planchets? more money is produced an influx of new collectors is produced

Mike

Level 7

Has nothing to do with being stuborn. Why do we have to change our currency because every country in the world does. We're Not every country. I'm happy it works there. Does it mean it will work here. I don't know and finding out I don't care.Go ahead and change it all. Nobody likes the sets coming out now. And you want to change a system that is not broken. What about loss of jobs. Deliveries from the Fed to the banks. What about the people who work at the mints. I hope you have plans for them anyone associated with these changes What about there lives. They won't change. It's so easy we don't need this we don't need that. Who decided 'll this.? And why. No one.has mentioned 24 trillion in debt. Raising prices. The simple act of buying a soda. I give up with all the experts. . No one ever thinks of the human side. No one. There are a lot of answers first of what will happen if we do this . In the hundred times I have heard this I never heard of any impact. Just change it it's needed. If so Why.?

It's Mokie

Level 6

And yet the Japanese economy remains strong and the Japanese people, of which I have many relatives, remain unconcerned about that momentous, and long ago, shift in their coinage. I think the collector community has a bit of selfish motivation for wanting the Cent and the Paper Dollar. After an initial and inevitable outcry (because we are Americans and we like to outcry), things would settle down quite quickly and our citizens, the vast majority of whom care not a whit about coin collecting, would quickly adapt.

Mr_Norris_LKNS

Level 4

Interesting point! They are doing fine. I was mainly bringing them up to show how denominations drop off the bottom of the list, only to have everything move down. I still would not want to write out prices and figures longhand! They must use some kind of shorthand? I’m sure we would if it came to that...

Longstrider

Level 6

I have to agree with Mike. We love our one cent coins and our dollar bills. Thanks.

CoinLady

Level 6

Good blog. I've been following this story for many yrs. I cannot see the cent being eliminated. Americans do not like any kind of changes in money. After all this time, no one uses $1 coins, but Canada has for many yrs. Many countries have done away with their 1c or 1 dollar, pound, whatever their unit is. I cannot see this happening here. I sincerely hope there is not a cashless US, at least in my lifetime! I am considering giving up a home computer!

VKurtB

Level 4

So stubbornness is now a basis of policy, eh? When you boil it down, that's all the "don't change the change" side has going for it - obstinance. Seems like a thin basis to stand on, to me.

Mike

Level 7

I have answered this blog about one hundred times. Is always the same get rid of the cent because Canada did it. News break more copper in nickels than cents. Get rid of the nickel everything goes up a dime cents are made out of zink covered in copper. More copper in silver eagles.on and on. Yes getting rid of the cent the nickel and the dollar will affect the economy. Workers. What you pay for. But know one thinks of any of that. Delivery of coin dollars will be done by eighteen wheelers to banks deposits by bags it doesn't end. Change all the machines for a soda or snack. How about take care of the 24 trillion in debt first. We can't even change a picture on a twenty. Let's get rid of that two. For every action there is a reaction.. Think!! This is the last I will ever answer a blog or thread with let's get rid of this. This blog I agree with read it he makes sense because he thinks. Thank you. You made my day . If your friend jumps off the bridge do you.? We're our own country not Canada. Tried to visit lately harder than ever before. But there our friends. Thanks for a great blog to bad they won't read it all. Mike

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