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U.S. Money Reserve President Philip Diehl on Removing the Penny

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On December 30 2015, U.S. Money Reserve President Philip Diehl gave an interview, from which a three-minute clip was aired on CNBC Squawk Box. In the interview excerpt Diehl outlines that the penny should be phased out of circulation and gives his reasons for that position.

Several statements are posed to Diehl by the interviewer during the course of the interview. The first such statement is that economists view the removal of the penny may distort prices and press inflation. Diehl insists that this view is the position encouraged by the penny lobby. Diehl opens his argument with his strongest evidence: that only 25% of transactions are still performed in cash, with the other 75% being performed electronically. In his own words, only “a very few percentage of transactions” would be affected by the change.

The interviewer states that companies would round prices up, to which Diehl immediately retorts that rounding down is equally possible. He further states that there is nothing stopping companies from rounding up today beyond the status quo. He further states that competition will discipline companies to ensure the change benefits consumers. Competitive pressure, he says, will lower prices.

On a different track, the interviewer draws the analogy to the nickel, which is also minted at a loss. Diehl states that chanigng the composition of the nickel can still save it, while the penny has been obsolete for 25 years.

The interviewer asks Diehl who the penny lobby is, for which Diehl points to the zinc lobby. Production of penny blanks has been outsourced to private companies, and, at 97.5% zinc, the zinc industry has the most to gain. Removing the penny would ultimately result in an annual savings of $105 million dollars.

Diehl’s strongest argument is his first one, stating in hard numbers how many transactions would be utterly unaffected by the demise of the penny. His connection to the zinc industry and lobby as the main interest behind the penny’s continued use is also a strongly logical argument. Perhaps his weakest argument is his insistence that competitive pressure would ensure prices would be dropped rather than raised over phasing out the penny.

 

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