Monday, July 17, 2006


Why getting rid of the penny is really really stupid

So many people want to get rid of this feeble and practically worthless coin. I can't blame 'em on the purchasing power of 1ยข by itself. However the penny does present a specific role in the economic system despite its otherwise worthless value. It's a hedge against inflation.


Yeah, the little bitty worthless penny is a moderating factor against inflation. You heard right. The fact that it costs more to mint the coin than what it's worth keeps too much money from being produced. Or at least in theory. Anything that limits cash from being minted helps it retain some degree of economic value, simply because there's less of it around. Probably one of the original historical factors that coin currency has been in use longer and more often than the paper kind. (There's only so much gold, silver, etc. to go around.)

After the penny is gone, what's next? Nickel, dime, quarter, and dollar? It simply just moves the worthless denomination up each time. If dealing with physical cash is such a problem, why not go to a full currency free system based on some kind of electronic debit exchange system. This could enable market forces to go full tilt with hyper-inflation if it wanted, since there would be nothing physical limiting it then. Dollars could go the way of the Lira... And it all started with the end of the penny.

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