Cash payments and the penny policy debate

Brian C. Prescott and Oz Shy

Journal of Economic Behavior & Organization, 2023, vol. 208, issue C, 80-94

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.

Keywords: Optimal currency denominations; Cash transactions; Burden of exchanging cash; Penny elimination (search for similar items in EconPapers)
JEL-codes: D12 E42 G59 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:208:y:2023:i:c:p:80-94

DOI: 10.1016/j.jebo.2023.01.024

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