Taking One Side of the Penny Debate

Last night, President Trump told the Secretary of the Treasury, Scott Bessent to halt new penny production.

If  they proceed, the decision replicates what others did long ago. Since eliminating its penny in 2012, Canada has been rounding cash transactions to the nearest nickel. Meanwhile Australia has been penniless since the early 1990s and some Europeans, including the Danes and Italians, removed their low denomination coins more than 50 years ago.

Still, in the U.S. we continue debating if we should keep the penny.

The Penny Debate

History

English colonists got the name pence from penny. After, Alexander Hamilton supported decimal coin names, we eventually got the dime (disme) and the cent (centum).

The first penny:

Pennies from 1909-2009

Now

Pro

We can cite a slew of reasons for eliminating the penny.

The first is always the expense. A penny costs slightly more than three cents to produce and distribute. Consequently, the government winds up spending more than the penny’s recipients pay for it. Increasingly expensive, penny production loses the U.S. government more than $100 million annually.

In addition, pennies are minmally spendable. Hit hard by inflation, pennies have diminished purchasing power and waste the time it takes to count them at the cash register. Concerned about wasted time, Chipotle tried to go penniless by rounding up (and not telling customers) during 2012. When the policy leaked, they said the goal was to expedite long lines. But after that, they had to round down.

Furthermore, only one third of the minted pennies circulate because of penny jar hoarding, and even losing them in couches. As pennies disappear, we mint more that won’t be spent.

Called seigniorage, the Mint receives the difference between the cost of producing a coin and its face value. Naturally, when cost is more than revenue, you lose money. And, it’s not just the penny. The nickel costs 11 cents to produce and a whopping 13 cents once other distribution costs are covered:

Con

Meanwhile, penny defenders also focus on production and spending. Because our pennies are mostly zinc with a thin copper-plating, the zinc industry wants to keep them. Furthermore, they say that we need pennies to avoid rounding up prices. (But we can always round down.) However, shown by a Wake Forest economist’s research, the purchase prices that end with .99 usually have a tax that ups the amount.

At this point, some say eliminating the penny would boost demand for nickels. But then we have a new problem. By minting more nickels, we soon erase our cost saving from eliminating the penny.

Finally, rather unexpectedly, we can add some TSA data. At airport checkpoints, the cash and coin that people forget to retrieve is recorded by the TSA. Because they left close to $1 million in 2023–approximately double the 2012 amount–we could say they are using more change and want to keep their pennies. However, if we account for inflation and the number of people passing through checkpoints, the math says there was no change from 2012.

Still, the penny’s proponents say if we are using physical money, it should remain:

Our Bottom Line: The Money Supply

Our coin supply begins with an order from the Federal Reserve. After “buying” the pennies (nickels, dimes, quarters, half dollars) that were made by the Philadelphia or Denver Mint, they distribute them to banks. The bank also might have gotten its change from Coinstar. As the company that will swap your coins for paper currency, it takes bags of coins to banks. From there, they re-enter the economy when retailers, for example, withdraw them.

Looking at the big picture, we are really asking about what our money supply should be composed of. And that takes us to why we demand money. We use money for 1) transactions, 2) for precautionary reasons, and 3) for speculation. Every day, we use money to buy goods and services. We also want to be able to accumulate money as the savings and checkable deposits that we might need for an emergency. And finally, because some forms of money pay interest, they are categorized as satisfying our “speculative” demand for money–using money to make more money.

I suspect that the three functions of money won’t compel us to keep the penny. Yet, we seem to care.

My sources and more: President Trump’s “order” reminded me it was time to return to the penny debate. Also, again, we returned to this NY Times article. However, it was the FAS (the Congressional Research Service) that had the interesting images and facts. And, for the key up-to-date facts, I recommend the Mint’s 2024 report and this NPR article. Finally I’ve included this Delish article for the Chipotle rounding up story.

Please note that parts of today’s post were in a previous econlife.