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The end of the Penny
00:09:30
Canada has stopped distributing its smallest coin –the one cent or the penny.
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- [00:01]
A
Thank you for downloading from the BBC. For details of our complete range of podcasts and our terms of use, go to bbcworldservice.com podcasts
- [00:13]
B
hello and welcome to More or Less on the BBC World Service. I'm Ruth Alexander. The Canadian Mint has stopped distributing its smallest coin, the $0.01 piece, because it was costing more to make than it's actually worth. In homage, we're devoting this week's episode to small change from the penny in the US And Britain, the euro cent in Europe, to the Uzbek tin and the Burmese pia in the United States. At the moment, there's a fierce debate about whether the cent known as the penny and about the same value as the Canadian cent should be got rid of too. Geoff Gore is the President of Citizens to Retire the US Penny. We invited him onto the more or less podium to make scrapping the penny.
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C
I think that it's valuable to start by just asking what's the point of currency to begin with? And that's to facilitate cash transactions. What you want to be able to do is go to the store and give them some coins and get something in return. Now, it used to be that a penny could serve that purpose because it was worth something, but that's just no longer the case. Now, despite the fact that the penny is not serving any useful purpose, it actually does have real costs. And the most obvious of these is that it now costs more than a penny to make a penny. For example, the US Mint announced that last year it cost over 2 cents to make every single one of these coins. In addition to this obvious cost, there's another cost that is actually, I think, more significant, which is the value of the time that we spend waiting in line for the person in front of us to handle these pennies. There was a study done by Walgreens and the national association of Convenience Stores that found that roughly 2 1/2 seconds were wasted in every cash transaction just as a result of handling pennies. This may not sound like very much, but it really adds up over the course of the year to for the country, billions of dollars of wasted time. It's time for us to retire the penny.
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B
If America did, it would be joining not just Canada, but Australia, New Zealand, Belgium and Holland, who have all got rid of their smallest denomination coins in recent decades. But to get their way, the anti penny movement in the US would have to face off considerable opposition. For their opponents, the penny is much more than something that just clutters up their purses. Philip Muscle, Director, News Magazine, outlines the Main objection?
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D
Well, quite simply, one of historical importance. People feel that the centre has been around since the United States was created back in 1776, and they want that part of their heritage to remain. It's a simple emotive argument and it doesn't actually have any economic value apart from the fact that people want to keep the penny. And there is to a certain extent the idea of psychological pricing. People like to see things to 99 cents because they believe that they are getting something cheaper than a dollar. I still fall for it. I see something at $3.99 and I think, oh, it's three something when in fact it's $4. It's something that works across multi industries.
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B
People worry, don't they, that if the penny is taken out of circulation in their country, then prices will get up, rounded up. So something that costs 5.99 will cost $6.
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D
That is happening across the world. There's a system called Swedish rounding. Now a lot of countries have adopted this. For example, in the Eurozone you have Netherlands and Belgium particularly, who no longer produce the 1 cent or the 2 cent euro cent coins. What they do, and a number of other countries do this. Australia does it with their coinage, New Zealand does it. But something is 1, 2, 3 or 4 cents, then they will round it down. If it's 6, 7, they're rounded up. So their argument is that it swings the roundabouts. Sometimes you'll get things rounded up, sometimes you'll get things rounded down. However, the penchant for psychological pricing so that so many things are 99 cents means that there will probably be more things that are rounded up than there are rounded down.
- [04:07]
B
So the opposition are objecting, not just with their hearts but with their heads. They think that all those price tags which end in $0.99 will inevitably get rounded up if the penny goes. But the humble pen is probably actually already costing people dear because when you subtract it from a price, it so easily fools people into thinking they're getting a bargain. A professor of Marketing at the US's Rutgers School of Business, Robert Schindler, thinks this 99, or 99 as he calls it, psychological pricing tactic is powerful.
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E
The studies that have done experiments, clean cut experiments, like with a direct mail catalog where one version of the catalog had round number prices and the other nine, nine ending prices found a sales increase for the nine ending prices of about 8%.
- [04:56]
B
But why does that work? Because we sort of all know that they are trying to make the price look less. But when you think about it, you know that? Well, $1.99 means two.
- [05:07]
E
We know it when we think about it, but a lot of times we don't think about it in our perceptual system. That's active when we're doing a quick processing of numbers, basically is biased towards the first digit and doesn't fully process the rest of the digits in the number.
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B
So when the brain looks at a price that says 1 99, what the brain sees is 1.
- [05:30]
E
Let me tell you about an experiment that sort of illustrates how this happens. If you ask people the difference between a price of $25 and $20 in one group and the other group price of $24.99 and 1999.
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F
Right.
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E
They're both $5 differences. The group that had $24.99 and $19.99 will estimate a larger difference than if it's 25 versus 20. It seems like a bigger difference because the leftmost digit changed.
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B
Do we know how the practice started, why it started?
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E
There's a story about that, and the story is that it started in the growth of department stores in the 19th century where there were a lot of clerks in the store that were not visible to the owner. And so when somebody purchased something, there would be a temptation to just pocket the money rather than put it in the cash register. So some ingenious department store manager said, well, if we lower the price from like $2 to $199, this is going to strongly encourage the clerk to go to the cash register to make the change. And it just is going to help keep the clerks honest. And that's a story that's been around for ages, but I don't think it's true. We found it in lots of ads in the New York times in the 19th century. The retailers did it then for the same reason they do it now, because they have the strong intuition that it leads the customer to perceive the price as considerably less than it really is.
- [06:58]
B
We've been talking about prices which end 99. This kind of psychological tactic is used widely all around the world. But the prices don't always end 99, do they?
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E
That's right. In Asian cultures, you don't see many 99 prices, but you see tons of 88 ending prices. In Asian cultures, they'll use 8 in the way we in Western cultures use 9, probably because in the Asian cultures, 8 is an auspicious number.
- [07:28]
B
Human beings all over the world so easily fooled. But while the Americans argue over the worth of their smallest coin, we've been rummaging down the sides of the great sofa of the world and found some coins worth much less than the US cent. First, we fished out the Tanzanian 5 cent coin. You'd need 325 of those to make a US cent. But smaller than that is the Burmese piah. 850 of those would make a cent. But the smallest of all that we could find is the Uzbek Tian. You'd need almost 2,000 to make a US cent. Well, we were quite pleased with our haul until Emmanuel Boas from the Tanzanian Central bank raised a technical point.
- [08:13]
F
It's unlikely to find that coin right now in circulation because literally it cannot buy anything. For the time being, it's literally no use. We are thinking of withdrawing that coin. The smallest, which you would probably find in the streets, is 20 cents. You can buy a bunch of vintage in the local market for 20 cents.
- [08:35]
B
So the five cent coin in Tanzania is still legal tender, but it's almost never seen in everyday life, in actual fact. And indeed the same goes for the Uzbektian. It turns out boxes of matches and sweets are now a more commonly used form of small change. So our search goes on for the smallest coin that's still in wide use. What's the smallest coin you've used and what did you buy with it? We'd love to know. Email us via moreorlessbc.co.uk and you can hear other editions of More or Less at our website, BBC.co.uk more or less.
- [09:13]
A
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