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They'll save money in the long run in not printing the pennies at a loss. Also, by buying them back from the banks it's the government that takes the hit for t

They'll save money in the long run in not printing the pennies at a loss. Also, by buying them back from the banks it's the government that takes the hit for the cost of de-circulating the penny, rather than the banks or the consumer. If private industry were taking the hit, people would fight tooth and nail against retiring the penny.

rahimnathwani 13y ago
I understand that it might make sense to stop printing new pennies, but how does the central bank benefit by taking the _existing_ pennies out of circulation, assuming the scrap value of the metal is less than the pennies' face value? (If the scrap value were higher than the face value, presumably the private sector would take the pennies out of circulation, and no government action would be required.)
- mcpherrinm 13y ago
  If you didn't take them out of circulation, what would you do with them? Stores, banks, and people would be stuck with their piles of pennies. You'd end up with a situation like US dollar coins: Half-hearted attempts means nobody really bothers to switch. If every cash register in the country, and every person's pocket still has pennies in it, would people really start doing the five cent rounding? It would be a pretty poor currency user experience.
- zAy0LfpBZLC8mAC 13y ago
  For the central bank, it doesn't matter what the face value is relative to the scrap value. If they take back a coin, they get both the face currency value _and_ the scrap value - in contrast to all other participants in the system who can only get one of those out of the coin (assuming melting it down was legal). When you return a cent coin to the central bank, you are simply depositing money in your account with the central bank - you give them one cent of cash, they give you one cent of account balance - and taking deposits does not somehow cost the bank the money that they take as a deposit. Now, the central bank is in the special position that it can create coins and bank notes, which is why they don't necessarily lose any money when they melt down the coin you gave them, as they can just mint a new one, presumably a cheaper one, and the amount of money they have won't change, except by the difference between the scrap value of the old coin and the cost of producing the new coin.

rahimnathwani 13y ago

I understand that it might make sense to stop printing new pennies, but how does the central bank benefit by taking the _existing_ pennies out of circulation, assuming the scrap value of the metal is less than the pennies' face value? (If the scrap value were higher than the face value, presumably the private sector would take the pennies out of circulation, and no government action would be required.)

mcpherrinm 13y ago
If you didn't take them out of circulation, what would you do with them? Stores, banks, and people would be stuck with their piles of pennies. You'd end up with a situation like US dollar coins: Half-hearted attempts means nobody really bothers to switch. If every cash register in the country, and every person's pocket still has pennies in it, would people really start doing the five cent rounding? It would be a pretty poor currency user experience.
zAy0LfpBZLC8mAC 13y ago
For the central bank, it doesn't matter what the face value is relative to the scrap value. If they take back a coin, they get both the face currency value _and_ the scrap value - in contrast to all other participants in the system who can only get one of those out of the coin (assuming melting it down was legal). When you return a cent coin to the central bank, you are simply depositing money in your account with the central bank - you give them one cent of cash, they give you one cent of account balance - and taking deposits does not somehow cost the bank the money that they take as a deposit. Now, the central bank is in the special position that it can create coins and bank notes, which is why they don't necessarily lose any money when they melt down the coin you gave them, as they can just mint a new one, presumably a cheaper one, and the amount of money they have won't change, except by the difference between the scrap value of the old coin and the cost of producing the new coin.