Let’s delve into a significant announcement that has caught the nation’s attention. On Sunday night, President Trump took to his Truth Social platform to declare his latest initiative aimed at economic efficiency: the elimination of the penny.
“For too long, the United States has been minting pennies that cost us more than 2 cents to produce. This is incredibly wasteful!” he expressed on Sunday night. “I have directed my Secretary of the US Treasury to cease the production of new pennies. It’s time to eliminate waste from our nation’s budget, even if it’s just a penny at a time.”
The Department of Government Efficiency, led by Elon Musk, echoed this sentiment last month on X, highlighting the issue of “negative seigniorage,” where the cost of producing a penny exceeds its face value, creating a financial dilemma.
The U.S. Mint churns out billions of pennies annually—over 3 billion just last year—despite the fact that each penny costs approximately 3.7 cents to mint. With the total production cost exceeding $85 million for the previous year alone, the financial implications are substantial. However, eliminating pennies could lead to an increased reliance on nickels, which are even more economically unviable, as minting a nickel costs nearly 14 cents.
While Congress oversees U.S. Mint coin production, instructing Treasury Secretary Scott Bessent to halt penny production isn’t entirely unfounded. In an article for The New York Times Magazine last year, Harvard’s expert in constitutional law of money noted that “There’s no legal requirement for the secretary to continue issuing pennies.” However, this assertion has not been challenged or confirmed by Congress or the judiciary.
There’s historical precedent for such action. In 2020, the U.K.’s Royal Mint announced it would suspend production of 2p coins and £2 coins for a decade due to surplus. Interestingly, these coins remain in circulation and are still considered legal tender.
However, eliminating the penny in the U.S. poses challenges. Lawmakers have attempted similar initiatives in the past: in 2006, an Arizona congressman proposed a rounding system for transactions to diminish the penny’s relevance when zinc prices surged. A decade later, other Arizona lawmakers sought to stop penny production altogether, but these proposals were never addressed by Congress.
Examining the Impact of Other Countries’ Decisions to Eliminate 1-Cent Coins
In essence, the results were minimal. Countries that have abolished low-denomination coins experienced savings from reduced minting costs, and cash transactions were rounded to the nearest 5-cent increment. Often, nations that eliminated their lowest-value currency denominations later moved to phase out the next smallest increment. Thus, the nickel could be next in line.
Australia’s Experience with Eliminating Low-Denomination Coins
In 1992, Australia removed 1- and 2-cent coins from circulation. Recently, there has been a movement to eliminate the 5-cent coin as well, which would mean rounding every transaction to the nearest 10 cents. Although this initiative did not gain traction, the head of the country’s national mint predicted in 2020 that 5- and 10-cent coins would eventually face a “graceful death” due to declining usage.
Canada’s Transition Away from the Penny
Canada discontinued its penny in 2012, allowing existing coins to remain legal tender while encouraging merchants to round monetary amounts to the nearest 5-cent increment. This approach included a consumer education campaign to help shoppers adapt to the new practice. As a result, Canadians now routinely round transactions to the nearest 5 cents in cash payments, a behavior as common as their enthusiasm for ice hockey.
New Zealand’s Progressive Coin Elimination Strategy
In 1990, New Zealand eliminated its 1- and 2-cent coins, and in 2006, they further removed the 5-cent coin. Surprisingly, researchers found that prices actually decreased rather than increased following this change. One government official attributed this phenomenon to market competition, which discouraged retailers from exploiting the system.
Sweden’s Early Adoption of Coin Removal
Sweden was among the first to embrace this trend, ceasing production of its lowest denomination coins, the 1 öre and 2 öre, in 1972. Over the years, Sweden gradually phased out other coins smaller than the 1-krona denomination, showcasing a commitment to evolving their currency system.
Understanding the Complexities of Eliminating the Penny
Arguments in favor of retaining pennies often reflect broader concerns about phasing out cash transactions, which some advocates argue disproportionately affects low-income individuals without bank accounts. Despite this, cash usage has been declining for years, a trend that accelerated during the pandemic as consumers increasingly adopted contactless payment methods. As of 2022, only about 18% of transactions were cash-based, according to the Boston Fed.
If the U.S. were to eliminate the penny, officials would need to determine its future status. Some nations that have done away with their version of the penny continued to allow existing coins to circulate, while others ceased their legal tender status after providing a grace period for coin exchanges.
In regions that have eliminated small-denomination coins, cash transactions are typically rounded to the nearest 5-cent increment, while cashless transactions retain their precise cent amounts. Opponents of penny removal argue that consumers might lose out due to the rounding of prices that currently end in nine. However, a 2007 study by Wake Forest University economics professor Robert Whaples revealed that the chances of rounding up or down are effectively equal, suggesting that fears about price increases may be unfounded.
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