Philip Diehl, U.S. Money Reserve president, appeared on an interview, CNBC Squawk Box, re the demise of the penny.
There is a debate regarding the use of the penny because no one uses it anymore. People throw them away or store them. Some people are questioning that if the penny is out of circulation, it may cause inflation. Philp Diel does not agree with that argument. Penny lobbyists are the ones who want to keep the penny in circulation. Furthermore, Philip Diel states that only 25% of transactions are in cash, and the remaining 75 % is in electronic form, so only a small amount of sales would be affected by the elimination of the penny. Also, more competition amongst companies would encourage them to increase the penny.
There is an argument that if goods get priced at $4.99, $3.99, and $2.99, the value of the penny will go up, and it gets rounded off. Philip Diehl does not agree. He thinks that the penny could be rounded down, and no one wants to get a customer angry over one cent. Additionally, eliminating the penny does not create a new situation because companies could lower or raise prices regardless. Philip Diehl did agree, however, that if the penny gets eliminated, one will save $105 million dollars annually.
Another argument is that if Philip Diehl is against the penny, shouldn’t he also be against the nickel because it costs more than five cents to make? Philip Diehl states that the nickel is slightly different because they could easily change the composition of the metal to make it more profitable. Conversely, the penny is useless because it has been worthless for the past 25 years.
Philip Diel got asked a question re who benefits by keeping the penny in circulation. He states that the Mint does not produce pennies. The job is outsourced. The mint only stamps coins, bags them, and sends them to the Federal Reserve. It is the zinc lobbyists who want to keep the pennies in circulation because the penny is 97.5% zinc. Moreover, the Illinois Congressional Delegation has been an active supporter of the penny because Abraham Lincoln appears on it.
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