For years the penny has been held in a limbo of sorts with an ongoing debate on whether to keep producing the penny, whose production costs more than the monetary value of the coin, or to do away with it altogether. An interview with Philip Diehl on CNBC Squawk Box, the US Money Reserve President and former US Mint Director, shed some light on the matter and why the decision is still up in the air, so to speak.
Americans generally ignore the penny, whether it is on the street or as change it is almost entirely disregarded. This is largely due to the vanishing value of the penny. For years the penny has cost the US Government more to mint the coin than it is worth; as inflation increases, the value of the penny decreases and creates an even larger deficit between cost to produce and the purchasing power of a penny.
Many citizens fear removing the penny from the monetary system will lead to inflation and price increases, but Philip Diehl tells us that is not necessarily true. Times have changed and as much as 75 percent of transactions are made via credit or debit cards or another means of digital transactions, so eliminating the penny affects less than 25 percent of all transactions. Another compelling argument to eliminate the penny is to bring competitive pressure to companies, instead of increasing their prices by a few cents and upsetting customers.
A question posed to Philip Diehl was why not then eliminate the nickel as well as the penny, since it also costs more than five cents to produce. Diehl’s response was that while the nickel does cost more than its value of five cents, there is hope to manipulate the composition of a nickel to bring it down to a five cent production, or close to it, and the penny is beyond any hope for the same.
The opposing forces to saying goodbye to the penny are primarily composed of the zinc industry, being that the penny is made from 97.5 percent zinc. The Illinois Congressional Delegation is also for keeping the penny, since the penny is the seat in coin for Abraham Lincoln.