Eliminating the fractional part of currency from circulation (Pennies, Cents, Paras, Kopeikas). An Analytic Study: An Analytic Study

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JournalEastern Economic Journal
DateAccepted/In press - 2015
DateE-pub ahead of print - 21 Sep 2016
DatePublished (current) - 1 Jun 2017
Issue number3
Volume43
Number of pages10
Pages (from-to)520-529
Early online date21/09/16
Original languageEnglish

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.

    Research areas

  • randomised rounding, rounding tax, strategic pricing

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