The U.S. Treasury’s announcement to discontinue penny production marks a pragmatic shift in our monetary system that’s been decades in the making. Having covered financial policy for nearly twenty years, I’ve watched the humble penny transform from everyday currency to what many economists now call a financial burden.
Treasury Secretary Janet Yellen confirmed yesterday that penny production will cease by December 2024, ending a 230-year tradition that began with the first one-cent coins authorized by the Coinage Act of 1792. “The decision reflects fiscal responsibility and modern economic realities,” Yellen stated during the press briefing I attended at the Treasury Building in Washington.
The numbers tell a compelling story. According to U.S. Mint data, each penny costs approximately 2.1 cents to produce and distribute – creating a negative seigniorage that cost taxpayers $145 million last year alone. This upside-down economics has persisted since 2006, when rising metal prices first pushed production costs above face value.
“It’s rare to find consensus among economists, but the penny has achieved just that,” explains Dr. Gregory Mankiw, Harvard economist and former chair of the Council of Economic Advisers, whom I interviewed last month for a broader piece on currency reform. “The penny has become what we call a ‘negative externality’ – its costs exceed its benefits across the system.”
The decision aligns with international trends. Canada eliminated its penny in 2013, with Australia, New Zealand, and several European nations having previously discontinued their lowest-denomination coins. My discussions with Canadian retailers during a 2018 Toronto conference revealed a surprisingly smooth transition using a simple rounding system.
What happens to existing pennies? They’ll remain legal tender indefinitely but will gradually disappear from circulation. Federal Reserve data indicates approximately 130 billion pennies currently exist in American pockets, jars, and cash registers – roughly 400 per citizen.
The rounding system that will replace penny transactions mirrors the Canadian model. Cash purchases will round to the nearest nickel at final total – not on individual items. Electronic transactions remain unaffected, continuing to process to the exact cent.
Public reaction appears mixed but generally supportive. A Pew Research Center poll conducted last month found 68% of Americans favor discontinuing the penny, up from 34% in 2014. The dramatic shift suggests growing awareness of the coin’s economic inefficiency.
Not everyone celebrates the penny’s demise. During yesterday’s announcement, protesters from Americans for Common Cents, a zinc industry-backed organization, distributed pamphlets warning of “rounding inflation” and “historical erasure.” Their concerns appear largely unfounded according to economic research from the Federal Reserve Bank of Chicago, which projects negligible inflationary impact.
“The math simply doesn’t support inflation fears,” explains Dr. Esther Rabin, monetary economist at NYU, who shared data with me indicating rounding equally favors consumers and retailers. “Some transactions round up, others down – it essentially balances out.”
For Lincoln enthusiasts worried about honoring our 16th president, Treasury officials confirmed his portrait will migrate to redesigned $5 bills, ensuring his continued presence in American wallets.
The financial impact extends beyond production costs. Banks spend millions annually sorting, rolling, and transporting pennies. Retailers lose countless hours handling them. And consumers waste time fumbling for the copper-plated coins that increasingly stay unused in jars or get discarded.
I spoke with James Wilson, CEO of National Retail Federation, who welcomed the move: “Our members estimate penny handling adds 2-3 seconds per cash transaction. Multiply that across billions of transactions, and you’re talking significant efficiency gains for the economy.”
Environmental considerations also factored into the decision. The penny’s composition – 97.5% zinc with a thin copper plating – requires mining operations with substantial environmental impacts. Treasury estimates show penny production consumed over 18,000 tons of zinc last year alone.
The transition timing gives businesses more than a year to adjust procedures and reprogram point-of-sale systems. The Treasury has launched penny.gov, providing guidance for consumers and businesses navigating the change.
What should you do with your penny collection? Unless you possess rare specimens like the 1909-S VDB or 1955 Double Die, most pennies hold only face value. Numismatists suggest common pennies may eventually gain modest collectible value, though likely not for decades.
For the economy, this represents more than symbolic change. Research from the Federal Reserve Bank of Boston estimates the transition could save the broader economy nearly $1 billion annually when accounting for all handling costs throughout the financial system.
As I’ve observed covering economic policy shifts over two decades, even small changes in financial infrastructure can yield meaningful efficiency gains. The penny’s retirement appears to be that rare policy move with minimal downside and measurable benefits – a penny saved is, indeed, a penny earned.
