Friday, February 02, 2007

Should we get rid of the Penny?

I am sure that you learned about seignorage in macroeconomic, but if you didn't you may find this interesting. One of the interesting powers the government has is to make money worth more than it actually costs to print. For instance, it probably only costs a few pennies to make a dollar bill, but once printed the dollar bill is worth the full purchasing power of a dollar (not the few pennies it costs to make). Thus you can see the incentive for the government to keep printing money at will. (Of course this does not happen for the most part now because there is a cost---inflation, which you can read about more by googling Argentina + inflation , Zimbabwe + inflation or Weimer Republic + inflation).

However, an interesting development has occured with the Penny and the Nickle. Since the rise in copper, zinc and other metals, the government is now printing the penny and nickle for a loss. (about $40mn last year alond). There are now calls coming from economists to dump the penny, since its both a money loser and completely useless (name the last time you bought something for a penny). Here is one idea on how to eliminate it.

1 comment:

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