Officials and economists have debated ending the production of one-cent coins for decades.
However, the conversation turned political over the weekend when President Donald Trump ordered the Treasury to stop manufacturing new pennies.
Trump’s attack on the penny came after Elon Musk’s DOGE had already targeted the coin for elimination.
Amid all the contentious battles between the Trump administration and Musk over public spending, this is one issue on which most economists and others in the monetary ecosystem seem unconcerned.
According to the Federal Reserve, there are 114 billion pennies in circulation, equivalent to $1.14 billion, or 0.006% of the money in circulation.
Producing these pennies costs $192 million annually, nearly 4% of the U.S. Mint’s operating budget but only 0.00003% of the U.S. federal budget.
This expense makes the penny expendable, according to economists.
But eliminating the penny could disrupt the pricing of many low-cost products.
“Prices would have to be rounded to the nearest five cents to allow cash payments and receive the correct change: it will be the end of fast-food combo meals priced at $6.99,” said Gulley, adding that it’s unclear whether businesses would tend to round up or down.
The pricing decision is important, and some cite the penny’s impact on inflation, though even that appears minimal.
“Businesses could round up more often than down, which would cause a slight inflationary effect,” said David Smith, an economics professor at Pepperdine University’s Graziadio Business School.
But he added that studies have shown rounding prices to the nearest nickel does not produce significant inflation.
Eliminating the U.S. penny would have several economic effects, both positive and negative:
Cost savings
Production: It costs more to make a penny than it’s worth. In 2024, producing a penny cost 3.7 cents, resulting in a loss of $85.3 million. Eliminating the penny would save this expense.
Handling: Transportation, storage, and processing costs for pennies would be reduced for retailers and banks.
More efficient transactions
Rounding: Prices would be rounded to the nearest five-cent increment. This could simplify cash transactions and reduce checkout wait times.
Fewer coins: Eliminating the penny would reduce the number of coins in circulation, making change easier to handle.
Potential drawbacks
Inflation: There is concern that price rounding could lead to inflation. However, studies in other countries that eliminated low-denomination coins have not shown a significant impact on inflation.
Impact on low-income groups: Some people, particularly those with low incomes, could be affected by price rounding, as small increases could add up over time.
Other effects
Cultural shift: The penny is part of American culture, and its elimination could face resistance from some citizens.
Impact on charities: Some charities receive donations in the form of pennies, and eliminating the coin could affect their revenue.
Examples from other countries
Several countries, such as Canada, Australia, and New Zealand, have eliminated low-denomination coins without experiencing significant negative economic effects.
In summary
Eliminating the U.S. penny could generate significant savings in production and handling costs while simplifying transactions. While there is some concern about the impact on inflation and low-income groups, the experience of other countries suggests these effects would be minimal.
