India’s prime minister issued a directive last week that immediately invalidated two of that country’s most popular cash notes. Just like that, the 1,000 and 500 rupee bills were worthless.
Meanwhile, in the United States, taxpayers continue to pay the bill for minting pennies no one seems to use. Clearly, Americans are more sentimental about their money than are people in India, or than people just about anywhere else, for that matter.
According to news reports, Prime Minister Narendra Modi of India had a couple of
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reasons for summarily banning bills that account for about 86 percent of the nation’s cash. One was to force people to pay taxes. Most business in the country is done with cash, and most of it is underground.
For a limited time, you can exchange the worthless cash for new 500 and 2,000 rupee notes, the BBC reports, or you can deposit any amount in a bank. But if you deposit anything above 250,000, you will need to prove to authorities that you paid tax. Failure to do so will result in large fines. The government hopes to force people into the banking system, and to force people to fund better infrastructure and education, among other things, through taxes.
But another stated aim is to stop counterfeiting and the financing of terrorism through rupees.
The U.S. doesn’t have those kinds of problems. In fact, a large percentage of its population no longer uses cash. A Gallup poll last summer found that only 24 percent of Americans said they make all or most of their purchases with cash. That’s down from 36 percent in 2011.
Meanwhile, the New York Times says it cost almost $39 million last year to mint pennies. Each one costs more than a penny to produce. Of course, each penny circulates through the economy more than once, making that oft cited figure a little misleading. However, it’s safe to say that, with fewer people using cash, a lot of those little coins are piling up on bureaus and in jars.
President Obama has listed the inability to eliminate pennies as another example of how Congress refuses to do even the simple things that obviously should be done. However, no politician wants to run afoul of public opinion, and Americans don’t want to start saying to each other, “A nickel for your thoughts?”
A Yougov/Huffington Post poll two years ago found that 51 percent of Americans opposed eliminating pennies, with 31 percent strongly opposing it. That’s a lot of support for something of no practical value.
Even if the government let you pour all those pennies into banks for a limited time — giving people some real use out of them — it’s doubtful eliminating them would be popular. So, for the time being, a penny saved is still just 1 cent in an inflationary world.