As the United States moves to abolish—but at least halt production of—the penny, this momentous change in monetary policy represents the death knell of a coin that has circulated since 1793. This decision is taken against the backdrop of increasing production costs and the decreasing utility of the coin in an ever more digital economy. The final batch of pennies is set to be produced soon, leading to discussions on the implications for consumers and the economy.
As it stands today, the penny is mostly copper-plated zinc. It includes the profile of Abraham Lincoln, our Civil War president, and has for decades been an American currency mainstay. Meanwhile, the cost to produce each penny has skyrocketed to almost four cents. That’s over twice as much as it was only ten years ago! As more economic activity is captured in electronic transactions, the penny’s relevance continues to shrink. According to the U.S. Mint, nearly 60% of all coins in circulation are held at home in piggy banks. Households are stacking about $60 to $90 in coins — evidence of a stark turn away from cash-driven exchanges.
In fact, our own history and the international experience demonstrate that it is possible to get rid of low-denomination coins. Canada eliminated its one-cent coin from circulation in 2012. At the same time, the UK announced it would stop minting its one and two-pence coins in 2024 because there was sufficient supply already in circulation. In the 1990s, Australia and New Zealand simultaneously retired their one and two cent coins. Then, in 2006, they ceased minting five-cent pieces too.
Public debates around the possible elimination of the US penny have focused on costs to consumers. Retiring the penny would save consumers $55 million each year. Its production could be avoided altogether, saving taxpayers an estimated $56 million per year.
President Donald Trump once stated, “Rip the waste out of our great nation’s budget, even if it’s a penny at a time,” emphasizing the need for fiscal responsibility even in small denominations.
We might be surprised—the penny’s days are indeed numbered. At the same time, the debate rages over the future of other denominations, including the nickel, which is worth five cents but costs almost 14 cents to produce. As the economic landscape changes, policymakers are rethinking the policy wisdom of continuing to issue and circulate low-value coins that have increasingly demonstrably low value.