Pondering Your Bucks

The penny, a small piece of metal that has been in circulation since 1792, has recently found itself at the centre of a heated debate. With the U.S. Mint losing millions of dollars each year in the production of pennies and nickels, questions about the future of these coins are being raised.

The penny, now primarily made of zinc, has undergone changes over the years. The most recent change occurred in 1982 when the composition shifted from copper to zinc. However, the rising cost of zinc in 2006 caused the Mint to produce pennies at a loss. This resulted in a significant financial burden, with the Mint losing $85 million last year alone in the production of 3,172 million pennies.

The nickel, mostly made of copper, also poses a problem. Its production costs 13.8 cents per unit, causing a loss for the government. In 2023, the government lost $92.6 million by producing a large number of nickels.

Seigniorage, the difference between the face value of money and what it costs to produce it, is another factor in the debate. With the cost of production exceeding the face value of both the penny and the nickel, the government is losing money with every coin minted.

The Treasury expects to save $56 million in reduced material costs by stopping penny production. The eventual phasing out of the penny could also have a marginal impact in an increasingly cashless world, where only 16% of payments are currently made in cash.

Countries such as Canada, Australia, and New Zealand have successfully phased out their lowest-value coins, serving as examples for the USA. Canada, for instance, eliminated its lowest-denomination coin in 2012. Retailers were given the discretion to round cash transactions to the nearest nickel, unless Congress includes a directive in any proposed penny-eliminating legislation.

The potential for unfair impact on low-income and older Americans is a concern without a consumer-friendly rounding requirement. The 99-cent pricing strategy, common in many stores, may become obsolete, with a 95-cent pricing strategy becoming more common or retailers developing new pricing strategies.

The original penny design, featuring a woman with flowing hair to symbolize liberty, has been a part of American history for over two centuries. Despite the Mint stopping its production, the penny remains legal tender in the United States for the foreseeable future.

As the debate continues, it's clear that the future of the penny and the nickel is uncertain. With potential savings for the government and changes in retail pricing strategies, it's a decision that could have far-reaching implications.

Pondering Your Bucks