President Donald Trump has issued a directive to cease the minting of new pennies in the United States, marking a significant change in the nation's monetary policy. This decision aims to address the economic burden associated with penny production, which costs the U.S. Treasury $192 million annually. With 114 billion pennies currently in circulation, this move seeks to alleviate a financial strain while also potentially impacting cash transactions and pricing strategies across the country.
The production of pennies, which has been a staple in American currency since 1793, is not only costly but inefficient. Each penny costs three cents to produce, a figure that starkly contrasts with the cost of a nickel at eleven cents. The financial implications extend beyond production costs; eliminating the penny could save taxpayers millions of dollars each year, according to Gates Little, CEO of Southern Bank.
"I have instructed my Secretary of the US Treasury to stop producing new pennies." – Donald Trump
The discontinuation of the penny follows a historical trend; in 1958, pennies depicting wheat sheaves were replaced by the Lincoln design still in use today. While some may lament the end of an era, others see this as a necessary step towards economic efficiency. David Gulley, an economics professor at Bentley University, points out the economic burden posed by the penny's production costs.
"For far too long the United States has minted pennies which literally cost us more than 2 cents. This is so wasteful!" – Donald Trump
The shift away from pennies is part of a broader trend towards digital transactions. As recently as 2015, one-third of U.S. transactions were conducted with cash, but that figure has since declined to less than 20%. This decrease suggests a reduced reliance on physical currency, paving the way for smoother adoption of a penny-free economy.
Canada's experience with eliminating its penny in 2013 provides insight into potential impacts. In Canada, cash transactions are rounded to the nearest five cents, affecting total transaction amounts rather than individual item prices. While this system has worked smoothly in Canada, economists like David Smith from Pepperdine University note that businesses might round up prices more often than down, potentially leading to slight inflation.
"Businesses might round up more often than down, leading to a slight inflationary effect" – David Smith
However, Smith reassures that studies show rounding prices to the nearest nickel does not result in significant inflation. Despite these reassurances, some consumers who rely heavily on cash transactions may feel the impact more than others. Ajay Patel highlights that individuals who are unbanked or unable to access digital payment methods will bear the brunt of this change.
"The individuals paying for this benefit will be those who purchase products and services using cash and will continue to do so going forward because they are either unbanked or unable to access debit or credit cards or a digital wallet" – Ajay Patel
While there may be minimal economic impact overall, the elimination of the penny could influence certain pricing strategies. David Gulley suggests that prices would need rounding adjustments, possibly signaling an end to marketing strategies like $6.99 combo meals.
"Prices would have to be rounded to the nearest five cents to allow for cash payments and correct change received back — that will be the end of $6.99 fast food combo meals" – David Gulley
Despite potential concerns about pricing and inflation, Gates Little believes that eliminating the penny will not significantly impact the economy.
"Eliminating the U.S. penny wouldn't make any difference in the economy" – Gates Little
The environmental benefits of halting penny production also come into play. David Smith highlights the reduction in environmental costs associated with mining zinc and copper, thus presenting an additional advantage to ceasing penny production.
"Eliminating the penny would save taxpayers millions of dollars each year. In addition, the production of pennies has environmental costs, including the mining of zinc and copper, eliminating the penny could have a positive environmental impact" – David Smith
As for those who might continue to use pennies, Laura Maike from Burton, Ohio, suggests that existing pennies could see an increase in value over time due to their decreased availability.