Eliminating the Fractional Part of Currency from Circulation (Pennies, Cents, Paras, Kopeikas). An Analytic Study

Marko Rašeta ()
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Marko Rašeta: University of York

Eastern Economic Journal, 2017, vol. 43, issue 3, No 8, 520-529

Abstract: Abstract We present an analytical study which demonstrates that deterministic rounding policies are, in the absence of the fractional part of currency, exploited by retailers via strategic pricing. This shows that deterministic policies cannot be optimal. We then introduce fair stochastic rounding policies and demonstrate their power on the case of cash transactions in the U.S. in the potential absence of the penny. We deduce that the U.S. can safely remove both the penny and nickel from circulation provided these policies are carefully implemented.

Keywords: rounding tax; randomised rounding; strategic pricing; C65 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41302-016-0074-x

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