Tad DeHaven
Do you enjoy getting pennies back in change when you pay for something with cash? Probably not. Pennies are generally a nuisance for both buyer and seller and often just get tossed in a jar or the trash.
Per the president’s instructions, the US Treasury recently announced it will stop making the penny. Last year, producing one penny cost almost four cents, costing the US Mint $85 million. Not for the first time, bipartisan legislation in both houses of Congress would eliminate it. The penny should have been jettisoned long ago, but previous efforts in Congress failed in part because a special interest benefits from its continuance.
As an in-depth New York Times Magazine piece recounts, almost 50 years ago, President Gerald Ford’s Treasury Secretary William Simon told Congress to “give serious consideration” to ending the penny. President Barack Obama recognized its obsolescence but believed Congress needed to act. Whether the Treasury can act unilaterally by stopping penny production isn’t clear, but questions of legality are of little concern to this administration. Congress may finally be ready to do its job, so hopefully it won’t matter.
In 1982, the penny’s metallic composition changed to 97.5 percent zinc with 2.5 percent copper plating to cut production costs. Nonetheless, the face value of the penny has exceeded its production cost every year since 2006. Because inflation has eroded its purchasing power and the share of cashless payments has increased, the penny’s usefulness in facilitating exchange has plummeted. In 2023, the share of total payments made with cash decreased to 16 percent, even falling into second place for payments of $25 or less.
So, why has the penny continued to be produced even though it’s a money loser that few want to deal with? A big reason is concentrated benefits and diffused costs. The average person may consider the penny a nuisance, but they won’t expend time and money lobbying the government to eliminate it. However, a zinc manufacturer that’s made $1.6 billion since 2002 as the exclusive provider of penny blanks to the US Mint has a strong incentive to expend resources petitioning the government to keep the penny alive.
A small zinc company in Tennessee called Artazn (formerly Jarden) has spent around $3 million since 2006 lobbying for the penny through an astroturf organization called Americans for Common Cents (ACC). That’s not a massive sum, but given that it’s a niche issue and Congress’s limited attention span, inaction has generated a nice return on Artazn’s lobbying investment.
The ACC has argued that eliminating the penny would hurt charity fundraisers and would be inflationary because sellers would allegedly round up to the nearest nickel or dime instead of rounding down. These arguments have always been self-serving nonsense. A February study explains that rounding would broadly balance out, saving hundreds of millions of dollars through increased transaction efficiency. Canada (2013), Australia (1992), and New Zealand (1989) have all retired their 1‑cent coins, with no issues:
Overall, no country that has eliminated its one-cent equivalent has experienced a significant transaction problem as a result—transactions proceed smoothly (often more quickly), and consumers are not notably worse off. This international track record suggests that the US would likely see similar benefits if it chose to retire the penny.
The study does note, however, one issue that the penny’s remaining defenders are latching on to: The nickel is also a money loser (see chart). Depending on the rate at which nickels are consequently substituted for the penny, the Mint may not save money on net. But “what about the nickel?!” is insufficient justification for keeping the penny.
As noted, cash is used for an increasingly small share of monetary transactions. Electronic and digital payments can be made down to the penny or nickel. That wouldn’t change. And like the penny, other countries have eliminated their 5‑cent coin, and the sky didn’t fall.
If abolishing the penny and nickel is a political bridge too far, then giving the Mint the authority to switch to more cost-effective metals should be allowed. In 1866, Congress authorized a 5‑cent coin made of 75 percent copper and 25 percent nickel, which remains etched in law. The Mint has explored alternatives that would save money, but Congress hasn’t acted on its request for authority to make changes. Legislation to this effect has been introduced, but nothing has made it to the president’s desk.
Even better would be to allow the private sector to see if it can do better. The US Mint has a statutory monopoly on minting and issuing US legal-tender coins. As economist Willian Luther notes, private mints were successful until Congress stopped them in 1864. Instead of pleasing special interests, which Congress excels at, private mints would focus on satisfying customers, which private firms excel at:
If they operated today, private mints would not produce any old coin, of course. Instead they would only produce what banks (presumably their main clients) and banks’ customers wanted. It is hard to imagine they would produce the penny. They probably would not produce a dollar coin, more than a billion of which currently sit unwanted in government vaults; and, if they did, they would likely make it more distinguishable from a quarter. They might not produce the nickel—which also loses money—either.
If this is the penny’s demise, it will be a victory for common sense. Congress should go further by ditching the nickel, or at least allowing the Mint or the private sector the freedom to develop more cost-effective alternatives.