“Minting pennies costs the American taxpayer millions every year – nearly four times more than the pennies are worth. No private business would produce something at a 4x loss,” stated Sen. Mike Lee (R-Utah) as he unveiled the “Make Sense Not Cents Act.” The penny, being so long a staple of American currency, teeters on the edge of extinction. This move by the U.S. Treasury, motivated by rising production expenses and a call for fiscal frugality, has opened up an across-the-board debate about its effect on shoppers, retailers, and the entire economy.
It costs 3.69 cents alone to produce one penny, a 20% rise in just the last year alone. Halting penny production will cost $85 million a year, modestly priced in terms of a $6.8 trillion federal budget but one that represents a meaningful step towards rooting out government waste. The move has precedent: other countries such as Canada, Australia, and New Zealand have dispensed with their lowest-denomination coins with little economic disruption. Rounding of cash payments to the nearest five cents has become commonplace in Canada, with widespread rounding that has been widely accepted by customers and merchants alike.
Rounding of pricing practices and point-of-sale systems will be required from retailers, especially those with large volumes of cash transactions. Small businesses will be required to put in place rounding procedures, which may round prices up or down to the nearest nickel. This change can impact consumer expectations and confidence, as whether rounding practices are fair or not becomes a central issue. Companies may decide to round pre-tax prices so post-tax values round to the nearest nickel, or they may suffer low rounding losses as an act of goodwill.
The inflationary effect of price rounding has been seen as a concern. Graziadio Business School professor of economics at Pepperdine University David Smith provided the explanation that while companies may round up more frequently than they round down, rounding to the nearest nickel is not seen as creating meaningful inflation according to studies. In reality, Canada has found overall consumer effect to be negligible with some even gaining from rounding down.
The impact that penny manufacturing has on the environment is also something to take into consideration in this decision. Zinc and copper, the metals pennies are made with, are both extracted from the earth and have an environmental impact. Phasing out the penny would allow the U.S. to decrease its impact on the environment in a broader pursuit of sustainability.
While the promise of profit is made, death of the penny also brings to mind the impact on financially strapped consumers who live on cash. They could be compelled to pay a bit more when prices are rounded upwards. But as increasingly more transactions go cash-light, the effect overall could be watered down.
While President Trump’s executive order instructing the termination of the minting of pennies is an operatic move, ultimately it is up to Congress to determine whether to put the penny out of its misery. The legislative branch has traditionally been reluctant to make such decisions on grounds as varied as economic realities to emotional attachments to the coin. In spite of this, the contemporary economic landscape with its accelerated push for electronic transactions portends that the penny is fading away.
As the penny vanishes from the market, the spotlight will more than likely be shone on other coins, such as the nickel, which is also under attack due to the expense of making it. Nate Throckmorton, associate professor of economics at William & Mary, already has indicated the nickel could be the next to face the guillotine.
The move away from the penny is a multifaceted process requiring the balance of fiscal economy and consumer effect. As America goes through this, what other nations have experienced and the changing face of payment systems will be a major factor in determining the future of US currency.
