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Cash payments and the penny policy debate

Author

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  • Prescott, Brian C.
  • Shy, Oz

Abstract

This article quantifies the burden of exchanging currency notes and coins using a model of optimal consumer-merchant exchange of cash payments and consumer payment choice diary data. The model is then applied to analyze a policy debate whether to eliminate the penny coin from circulation. We find that penny elimination would reduce the burden of exchanging cash and will not have any significant inflationary consequences caused by price rounding. Surprisingly, a removal of both the penny and nickel coins from circulation would slightly increase (not decrease) the burden relative to penny elimination only.

Suggested Citation

  • Prescott, Brian C. & Shy, Oz, 2023. "Cash payments and the penny policy debate," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 80-94.
    • Handle: RePEc:eee:jeborg:v:208:y:2023:i:c:p:80-94
    DOI: 10.1016/j.jebo.2023.01.024
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Optimal currency denominations; Cash transactions; Burden of exchanging cash; Penny elimination;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G59 - Financial Economics - - Household Finance - - - Other

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