For starters, it costs the US Mint 1.55 cents to make a penny in 2016. And that's even though all pennies since 1982 have been made of 97.5 percent zinc and only 2.5 percent copper. The US government loses around $50 million a year making a penny; a coin many people either leave at the cash register or lose, or throw in a container at home and forget about. The Army and Air Force have banned pennies since 1980 in all overseas military exchanges because they were too heavy to transport.
Other nations like Canada, Australia, Denmark, New Zealand, Norway and Sweden have quit making their least valuable coinage. Still, a 2014 poll found that a small majority of Americans oppose eliminating the penny and 71 percent said that if they saw a penny on the ground they'd pick it up.
The penny, the first currency of any type authorized by the US government, was initially struck in 1787, though it didn’t become legal tender until 1856. Since then, more than 300 billion one-cent coins with 11 different designs have been minted. Abraham Lincoln became the first president to appear on a coin when he was put on the penny in 1909 which was the 100th anniversary of his birth. The Lincoln penny was also the first to include the inscription, “In God We Trust.”
The penny has lost its purchasing power; you can't buy anything for a penny. Penny stocks don't actually trade for pennies a share; it's a catchall term for any stock trading under $5. Of course, eliminating the penny would cause havoc among retailers. They couldn't advertise anything for $19.99 and say it costs under $20 and gas stations couldn't post post gas prices at $2.499 a gallon.
Recently Senators John McCain and Mike Enzi introduced legislation to eliminate pennies. The bill also proposes switching the paper one-dollar bill to a coin and changing the composition of the nickel in order to bring down its cost. They said it would lead to an estimated $16 billion in savings.
There are reason to keep the penny though. Retailers in countries that have banned the penny are required to round cash purchases up or down to the nearest five cents. This means if a purchase is $1.01 or $1.02, then the merchant charges you only $1. If the price is $1.03 or $1.04, then the merchant charges $1.05. This makes sense if prices are spread out evenly, merchants usually set the price.
This means that merchants who strategically set prices could make one or two extra pennies on every cash transaction. Economists call this strategic price-setting a rounding tax and it's been estimated it could cost consumers at least $600 million a year. Moreover, since the poor and disadvantaged use cash more than the rich, the rounding tax would fall disproportionately on them. Chipotle Mexican Grill tried this method at some of its locations in 2012 to speed up lines and faced customer backlash when people were given less change than they expected.
The highest value of denomination currently in production is the $100 bill, but in decades past, the Federal Reserve has issued $1,000, $5,000, $10,000 and even $100,000 bills. Where did they go?
Governments have eliminated large bills to help eliminate terrorism and tax evasion. Back in the early 1900s when a bottle of Coke cost a nickel, a Model T Ford sold for $290 it seems to make sense that nowadays we would have a need for large bills because you can't get a Coke or a Ford for anywhere near those prices. So, it would seem more appropriate to use them now than back in the old days.
A little history: the Continental Congress began issuing paper money, which included the $1,000 bill, to help finance the Revolutionary War. The thing is, the paper money wasn't very highly valued while $20 gold pieces were highly desirable.
The US government didn’t officially print $1,000 bills until the start of the Civil War. They were used to rapidly purchase supplies during the war. After the Civil War $1,000 bill and other large-denomination currencies were mostly used in real estate deals or interbank transfers because they made large financial transactions between financial institutions easier and safer.
The US stopped printing the $1,000 bill and larger denominations in 1946, but they continued circulating until the Federal Reserve, under order of President Richard Nixon, decided to recall them in 1969. He thought these large denominations made it easier for criminals to launder money.
Besides, printing $1,000 bills wasn’t very cost efficient. To produce them required engraving new plates for very small production runs while running off a lot of $1 notes is more cost efficient than producing comparatively few $1,000 notes. This has to be about the only time in history the US government was concerned about cost effectiveness.
About the only chance these big bills would return is if there was hyper-inflation. For example, in Germany in the early 1920s, 4.2 trillion marks were equivalent to a dollar.
Also, experts say modern technology renders large bills unnecessary. Credit cards, checks, electronic transfer have pretty much eliminated the need for them. Counterfeiting could be an issue. Try paying for something with a $50 or $100 bill and watch the cashier look at it and test it with their magic pin; that's assuming they'll even take despite the fact that it's printed right on the bill that it is legal tender for all debts, both public and private.
If you do come across a $1,000 bill, you could take it to the bank for $1,000. The bank would send it to the Federal Reserve, which would not allow it back in circulation. Or, you might find a collector who possibly would give you more than $1,000 for it.
What about the $2 bill? In 1862, when the federal government printed the first paper bills, $1 and $2 were printed, but it took a while for paper money to catch on. Eventually inflation brought the value of paper money down, but then the Great Depression hit and a lot of things cost less than a dollar. So the $2 bill really didn’t have much of a practical use.
When the economy recovered the $2 bill eventually found itself in a strange situation. Politicians used to be known for bribing people for votes and they would give them a $2 bill. Yes, there were crooked politicians in those days; they are not a new thing. Prostitutes charged $2 a trick and $2 was the standard bet at a race track. So, the $2 bill got a bad reputation.
Over the years inflation brought the value of the $1 and $2 bill closer and closer together, so the $2 bill became even less necessary. In 1966 the government decided to stop making it.
Ten years went by with no twos, but the $2 bill saved the government a lot of money because it's more cost-efficient to print twos instead of ones; they could actually print half as many twos and get the same dollar amount. As a result, in 1976, the Treasury decided to begin printing the the $2 bill again. They made 400 million of them, twice as many as dollar bills. Those $2 bills were for the country's bicentennial and many of them became collectors' item. As a result, they didn't catch on, becomi ng a cherished rarity instead.
There are roughly 1.2 billion $2 bills in circulation and they are still being printed. Out of the $1.2 trillion worth of coins and bills in circulation, less than one thousandth of a percent are $2 bills. You can still get them at the bank, but you have to ask.
Most printing is based on a calculation of supply and demand and the Federal Reserve has all kinds of tracking data and put together their print order annually. One of the main pieces of infprmation they use is “destruction.” If bills aren't fit to return to circulation it will be replaced. The Federal Reserv actually has pecial equipment that can tell if a bill is fit to return to circulation. The lifespan of a $1 bill is approximately 18 months, but a $2 bill lasts about six years. Since fewer $2 bills need to be destroyed, fewer are made.
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