Why we should get rid of the penny? The penny has become almost worthless over time, yet the US government continues to produce billions of them every year. If you’re short on time, here’s a quick answer: the costs of producing and handling pennies likely outweigh any benefits they provide.
In this comprehensive guide, we will analyze the reasons why the penny no longer makes fiscal or economic sense for the United States.
The Costs of Producing Pennies
Minting Costs
According to the latest data from the U.S. Mint, it now costs around 2 cents to produce one penny due to the rising prices of zinc and copper.
Considering the U.S. Mint produced 5.9 billion pennies in 2022, that’s over $117 million spent just to mint the penny! The costs have risen significantly over the past decades and will likely continue rising.
Some estimates predict the minting costs could reach nearly 10 cents per penny in the next 10-20 years if nothing changes.
Opportunity Costs
Beyond direct production costs, using pennies also has huge opportunity costs for businesses and individuals. Handling pennies wastes time that could be better spent on valuable activities.
One analysis found that eliminating the penny would save the average American over 2.4 hours a year just in time no longer wasted handling pennies. The time companies spend handling pennies also reduces productivity. Workers have to stop their usual tasks frequently when pennies build up and need to be rolled or redeemed at a bank.
All those penny-handling duties add up to over $3.65 billion in lost productivity per year to some estimates.
Handling Costs
Banks and armored carriers also waste money hauling pennies around the country. Transporting, storing, and redeeming pennies costs the banking industry an estimated $170 million per year.
Plus, the weight of pennies adds fuel costs for transport vehicles, as they have to haul around the nearly 9,000 tons of pennies produced by the Mint each year! Eliminating pennies could lighten the load and save on fuel.
| Penny Costs | Value |
|---|---|
| Annual Minting Costs | $117 million annual |
| l Productivity Losses | $3.65 billion annually |
| l Bank Handling Costs | $170 million |
Lack of Purchasing Power
The penny has lost most of its purchasing power over the last few decades due to inflation. In 2023, one penny has the purchasing power of what 1 cent could buy in about 1952. That means pennies today buy much less than they used to.
For example, in 1952 you could buy:
- A pack of gum for 1 cent
- A newspaper for 5 cents
- A candy bar for 10 cents
Adjusted for inflation, those items today would cost around:
| Pack of gum | $1.03 |
| Newspaper | $5.15 |
| Candy bar | $10.30 |
As you can see, a penny today buys a lot less than it did 70 years ago. No single item can be purchased for just 1 cent anymore. This demonstrates how inflated prices have reduced the penny’s purchasing power to almost nothing.
The penny is practically worthless for actual spending. When people leave pennies at the cash register or toss them in jars, it shows that they are valueless in transactions. Getting rid of the penny as a currency would align with its lack of real spending power today.
Countries That Have Eliminated Low-Value Coins
Canada
In 2013, Canada decided to phase out its lowest-value penny due to the high cost of producing the coin compared to its actual monetary value. The Royal Canadian Mint had been losing money for years producing pennies that were worth less than their metal composition.
Phasing out the penny saved Canada about $11 million per year in production and handling costs. Transactions in cash are now rounded up or down to the nearest 5-cent increment.
Australia
Australia removed its 1 and 2-cent coins from circulation back in 1992 due to the excessive costs required for their production and circulation. Like Canada, the metals required to produce such small denomination coins cost more than the actual face value of the coins.
Transactions were rounded to the nearest 5 cents to make up for eliminating the lower-value coins. This move has been beneficial for the country’s economy and is still in effect today.
Brazil
In 2005, Brazil decided to stop producing and circulating its lowest-valued coin, the 1 centavo piece due to inflation reducing its real value. Production costs exceeded the actual value of the bronze-colored coin, much like the experiences of Canada and Australia’s low coins.
Without the 1 centavo, cash transactions are now rounded up or down to the nearest multiple of 5 centavos in Brazil. The move has decreased minting costs for coins overall.
Sweden
In 2009, Sweden transitioned to a rounded cash system when they eliminated their smallest denomination coin, the 1 öre. Costing almost 2.5 öre to produce each coin, the 1 öre was generating losses much greater than its face value.
Rounding cash transactions to the nearest 5 öre has reportedly saved the country millions in unnecessary production costs. The 1 öre and 2 öre coins represented just 1% of the Swedish cash cycle, minimizing disruption from eliminating them.
New Zealand
In 2022, New Zealand’s central bank announced they would be removing their smallest 5-cent coin from circulation by the end of September. Reasons cited included high production expenses compared to the negligible value of the coin, as well as coins cluttering people’s homes when left unused.
Like other countries, cash transactions will be rounded up or down to compensate for eliminating the low denomination coins.
Alternatives to the Penny
With pennies costing more to produce than they are worth, many countries have transitioned to alternative systems that phase out the penny. Here are some of the main alternatives that have been proposed:
Rounding
One simple solution is to round cash transactions to the nearest 5 cents. This avoids the need for pennies while keeping pricing relatively accurate. For example, a $1.36 purchase would round down to $1.35, while a $1.38 purchase would round up to $1.40.
Several countries like Australia, New Zealand, and Brazil have implemented rounding successfully after eliminating low-denomination coins.
Alternative Coins
Some countries have introduced alternative low-value coins to replace the penny, like the 5-cent and 10-cent coins used in the Netherlands and Norway. These keep the convenience of having small change while using coins that likely cost less to produce than a 1-cent penny.
Electronic Payments
As digital payments like credit cards, debit cards, and mobile wallets grow in popularity, the need for cash transactions decreases. Countries like Sweden and South Korea have very high rates of electronic payments, reducing the demand for low-value physical coins.
However, electronic payments may not be practical for all transactions.
Charity Round-Ups
Some merchants have implemented voluntary “round-up programs” where customers can choose to round up a cash purchase to donate the balance to charity. For example, rounding a $9.86 purchase up to $10.00 would donate $0.14 to a good cause.
This allows people to easily donate spare change if they want to.
While the penny will likely stick around for a while in the US, these alternatives show there are creative options for phasing out low-value coins when appropriate without disrupting commerce. The key is finding solutions tailored to each country’s payment ecosystem and consumer preferences.
Arguments in Favor of Keeping the Penny
Tradition and Sentimentality
The penny has been around since the first United States Mint opened in 1793. It is the longest-running currency denomination in US history. Many people have grown attached to the penny due to its long history and tradition.
There is a sentimental aspect to keeping the familiar copper coin rather than doing away with it.
Some key moments in the penny’s history, like when Abraham Lincoln’s portrait was added in 1909, have made the coin beloved by many. There is an emotional tie for those who have tossed pennies into fountains or collected jars of pennies over the years.
This fondness for tradition presents a hurdle for getting approval to eliminate the penny.
Helps Consumers
Proponents of keeping the penny say it helps ensure the fair rounding of transactions. They argue that eliminating the penny could lead retailers to always round up purchase prices to the nearest nickel. This would be an underhanded way of raising prices by a few cents here and there.
For example, if a purchase price was $9.97 and rounded up, the consumer would pay $10.00 instead of the true price. Pennies provide a mechanism to pay the exact amount owed rather than a rounded amount. This benefits consumers trying to stick to a tight budget.
Rounding Effects
In 2021, approximately 43 billion retail transactions were conducted in the United States. If just half of those transactions had a final total ending in 1, 2, 6, or 7 cents, billions of dollars per year could be rounded up or down.
This raises questions about where that extra money would go and who would benefit.
Eliminating pennies would result in uneven rounding effects. About half would be rounded up and half rounded down. Federal Reserve economists have estimated this would transfer around $600 million per year from consumers to retailers.
Others argue the effects balance out over time across many transactions.
Why We Should Get Rid Of The Penny – Conclusion
As we have analyzed, producing billions of pennies per year is economically wasteful for the United States. The costs involved likely far outweigh any minor benefits in tradition or pricing accuracy.
Following the lead of other major countries, eliminating the penny could save taxpayers over $100 million per year with few downsides. For these reasons, it is time for the United States to phase out the use of the penny.
