01 April 2012

Eliminating the Penny

The recent move by Canada to remove pennies from circulation has caused speculation on how this would work should the United States. A Twitter discussion has prompted me to offer a small example based on my experiences in New Zealand. For this example I will assume that, like in many states, food items are sales-tax-exempt.

Suppose I made a quick run to the local Super Mart Center to pick up a few things we didn’t realize we were nearly out of. (I’m using “F” to represent food items that are exempt from sales tax, and “T” to represent items that are subject to sales tax.)

Milk 3.86F
Bread 2.36F
Paper Towels 2.16T
Subtotal 8.38
Tax @7% 0.15
Total 8.53

If I’m paying cash, the total would be rounded to the nearest 5¢, and I will pay $8.55 for the bill. If I instead pay with a debit or credit card, or even *gasp* write a check, the total will be $8.53.

Now suppose at the checkstand I decide I need a box of Altoids:

Milk 3.86F
Bread 2.36F
Paper Towels 2.16T
Altoids 2.27T
Subtotal 10.65
Tax @7% 0.31
Total 10.96

Now the cash amount paid will be $10.95. So you can see that over time and volume of purchases, the amount of rounding will approach zero. That is, there will be just about as much rounded down as rounded up.

And I want to stress again, this applies only to cash purchases. Electronic purchases will not be rounded, nor, I suppose, would check purchases–since checks are usually negotiated electronically nowadays, anyway. The printed receipt looks normal, but if the cashier hits the “Cash Pmt” key, an extra line will print showing the “Cash Total” with the rounded amount.

One further point: in New Zealand, they’ve eliminated not only the 1¢ coin, but also the 5¢ coin. Cash purchases are rounded to the nearest 10¢. No one there seemed to think they were missing anything by it.