Consumers benefit with a low denomination coin. Moreover, faith in the strength of the economy and the nation is tied to perceptions about the currency system, and public acceptance is an important criterion for evaluating currency and coinage changes.

Proposals to eliminate the penny and move to the nickel as the lowest denomination coin create public anxiety about higher prices and inflation. Over three-quarters of Americans (77%) are concerned merchants would raise prices without the penny. And they’re probably right. Economists generally agree that a company’s main objective is the desire to maximize profits. There is no incentive for firms to price in a way that will lead to rounding down of prices.

Also, a system of rounding would be regressive and hurt those least able to afford it because they make more small cash purchases.
Consumers benefit with a low denomination coin. Moreover, faith in the strength of the economy and the nation is tied to perceptions about the currency system, and public acceptance is an important criterion for evaluating currency and coinage changes.

Proposals to eliminate the penny and move to the nickel as the lowest denomination coin create public anxiety about higher prices and inflation. Over three-quarters of Americans (77%) are concerned merchants would raise prices without the penny. And they’re probably right. Raymond Lombra, Ph.D., Professor of Economics at Penn State University, told a Congressional committee that rounding cash sales up or down to the nearest nickel would cost consumers over $600 million annually.

Some proponents of penny elimination may say the coin’s demise would not even be noticed.  But removal of the cent is a concern, if only as a symbol of inflation.  If prices rise, the Consumer Price Index (CPI) rises which, in turn, triggers further rises in many public and private sector costs which are tied formally or informally to the CPI. The Wall Street Journal has said eliminating the penny would “wave a symbolic white flag before the forces of inflation.” They likened taking the penny out of circulation to actions taking by third world countries to degrade their currencies and create hyper inflation.

Approximately six in ten Americans (59%) think eliminating the penny would cause confusion when purchasing items. A system of rounding would be regressive and hurt those least able to afford it because they make more small cash purchases.  And the current coinage mix should be maintained as long as it meets individual consumer preferences.

Other items of interest:

• The Economics of Eliminating or Retaining the U.S. Penny – 2017 Shapiro study
• Testimony of Mark W. Weller, Executive Director of Americans for Common Cents, hearing entitled “The Future of the Penny” before the House Domestic and International Monetary Policy Subcommittee (July 16, 1996)
• Testimony of Raymond E. Lombra, Ph.D., Professor of Economics, Pennsylvania State University, hearing related to rounding legislation, the “United States Coinage Reform Act of 1989” (S. 814) before the Senate Banking Committee (June 20, 1990)
• Effects of price rounding