Squawk Box, a CNBC morning program, recently hosted the U.S. Money Reserve President Philip Diehl. Diehl who is also a former U.S. Mint Director, discussed elimination of the U.S. penny from circulation. He cited it costs more to make than it is worth, an expense to the economy which costs American taxpayers $105 million annually. Each penny costs 1.8 cents to produce, when he was at the helm of the mint, he unsuccessfully tried to eliminate it.
He responded to views from some economists who argue that its removal could cause a distortion in prices and may lead to inflation. He pointed out that most transactions carried out are electronically based putting cash ones at about 25%. Due to this, only a small number of transactions will be affected by the penny elimination. That argument has been used for the last 25 years, but he intimated that most businesses will actually round prices downwards as a good customer service gesture.
Competition dynamics in the marketplace he said will determine market prices, preventing companies from any increases caused the elimination.
Since the penny is 97.5% zinc, its major proponents are the zinc lobby and the makers of the coin blanks. A number of critics said that the nickel will be the next target of elimination. It costs 9.4 cents to make a nickel, however if changes to its composition are made it will be profitable.
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