New York Yankees Hall of Famer Yogi Berra, always known for his enigmatic quips, once declared with disappointment that "a nickel ain't worth a dime anymore." It's the kind of wisdom that ranks right up there with Ben Franklin's "a penny saved is a penny earned."
Ignoring for the moment that, of course, a nickel has never been worth a dime, the underlying point of Berra's complaint actually rings true. The constant eroding force of inflation renders our denominations of money worth less and less over time.
This is why there are frequently discussions about eliminating the penny—the one-cent coin.
A recent interview with Mark Carney, the governor of the Bank of England (and formerly the head of the Bank of Canada), reveals that the Royal Mint (U.K.) may be the next to eliminate its lowest denomination coins.
What's a Penny Worth?
For the BOE Governor Carney, the problem with the penny comes down to inflation. Due to the effect of inflation, "the real value of the penny, and what the penny can buy[,] goes down, and so at some point it does make sense to get rid of it," Carney said recently. It's true enough that very few people alive today can remember making purchases where pennies actually made a difference.
He even confessed, "to be honest I rarely see them myself," in the same interview.
To Carney's point, there comes a time when transporting enough pennies to make even the humblest of purchases becomes a cumbersome exercise. That defeats the point of coins being convenient and portable. Even vending machines and newspaper racks don't accept them.
Mr. Carney knows a thing or two about the removal of pennies—denominated as one pence in the U.K.—from circulation: He oversaw the same process while governor of the Bank of Canada. Australia has already done away with its own equivalent to the penny, as well, allowing prices and sales taxes to simply be rounded to the nearest 5 cents.
Will the U.K. and the U.S. follow suit?
A Brief Minting History
Despite their red-brown appearance, pennies in the U.S. have been made from 95% zinc since 1982. Although it follows a slightly different timeline from its American counterpart, the British penny also lost its more valuable metal content in 1992, when the bronze alloy was replaced with copper-plated steel.
Even with its cheaper composition of base metals, the penny still loses money for the U.S. Mint. In other words, it costs more than 1¢ to produce.
The first penny minted in Britain was actually made of silver. It was introduced during the 8th century. Not until 1797 did the public see the introduction of a copper penny that would be more familiar to contemporary observers.
Ultimately, Carney's argument makes sense for both sides of the Atlantic. Pennies have become less practical because they buy so little. In fact, people oftentimes throw them away!
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