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

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  • Marko Rašeta

    (University of York)

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.

Suggested Citation

  • Marko Rašeta, 2017. "Eliminating the Fractional Part of Currency from Circulation (Pennies, Cents, Paras, Kopeikas). An Analytic Study," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(3), pages 520-529, June.
    • Handle: RePEc:pal:easeco:v:43:y:2017:i:3:d:10.1057_s41302-016-0074-x
    DOI: 10.1057/s41302-016-0074-x
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    References listed on IDEAS

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    1. Raymond E. Lombra, 2007. "Pennies, Pricing, and Rounding: Is all the Relevant Analysis In?," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 147-152, Winter.
    2. Robert Whaples, 2007. "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 139-146, Winter.
    3. Raymond E. Lombra, 2001. "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 27(4), pages 433-442, Fall.
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