Debates surrounding low value coinage – their use, perceived usefulness, seigniorage, and so on – are hardly rare, particularly as countries such as the Bahamas, Estonia, Slovakia, and Lithuania have either previously or plan to introduce cash rounding, effectively dropping the lowest denominated coins regardless of them remaining legal tender.
President Trump’s announcement of a directive to the US Treasury Secretary to cease production of the country’s lowest denomination coin has reignited this debate in the United States, whilst the UK Government has responded by confirming that it does not plan to follow suit for its lowest denominations, the 1 and 2 pence coins. So, does Trump’s newest plan to save cents make sense?
An obvious argument for the continuation of the penny is its history. What would the US cash system be without the lowest denomination coin completing the set? Although one could argue that production of proof coins would satisfy collector demand whilst raising revenue for the Mint at the same time.
The expense of producing these coins is hardly new and there are concerns that the removal of the penny is a slippery slope to a forced cashless society. Dropping the penny wouldn’t instantaneously lead to this, but those in favour of the perceived ease of digital payment options see withdrawal of the coin as the first step in streamlining payment choices for a more modern and digital society.
The above does lead into all of the issues of a less cash society, particularly for more vulnerable consumers and the under or unbanked who are most likely to be affected, as the sector of the population most reliant on cash for transactions.
Similarly, charitable organisations receive a chunk of change from coin collection mechanisms, be they donation buckets on the street or canisters at the supermarket checkout. The amount of change received may be far less than in previous years, particularly since COVID, but is no less important.
According to the US Mint’s Annual Report for 2024, it currently costs 3.69 cents to produce each circulating penny. These costs have jumped from 2.7 times the face value of the coin in 2022, creeping steadily closer to costing four times as much as the penny is worth. Negative seigniorage currently sits at $85.4 million, close to the negative $86 million in 2023.
Those in favour of dropping the 1 cent argue that removal of the penny would remove these costs, therefore problem solved and case closed! Not exactly, if you look at the next lowest denominated coin, the nickel. Production costs for the 5 cent coin also exceed their face value, with each nickel costing 13.78 cents, or more than double its value, to produce and distribute. If the penny is dropped altogether and rounding introduced, demand for nickels will likely increase and so will the need for greater production and its associated costs.
Although the obvious answer to this concern seems to be to cease production of both the penny and nickel, and round to the nearest 10 cents – as has been the case in New Zealand since 2006, following the removal of the 5 cent coin as legal tender.
The US Mint produced 3.2 billion cents in 2024, roughly 10 coins per capita. There are approximately a quarter of a trillion 1 cent coins in circulation in the United States, suggesting no shortage of pennies available. Even if minting new pennies ceases completely, there are plenty of these coins to not require the immediate introduction of cash rounding.
Additionally, and even if a rounding system is introduced, this does not necessarily require complete withdrawal of the lowest denomination. Several eurozone countries have introduced cash rounding whilst the 1 and 2 cent coins remain legal tender as required, including the three European countries mentioned at the beginning of this article – Belgium, Ireland, and Italy – as a few examples.
One of the largest benefits of coins, compared to many banknotes, is that they last for a significant length of time due to their metal composition. Those pennies currently in circulation will last for decades to come, with new coin production unlikely to be required in the near future.
However, although there are billions of cent coins in circulation, this does rely on an efficient coin cycle ensuring that those pennies continue to recirculate effectively. Although it has made great strides in identifying and targeting issues in the coin supply chain, the US Coin Task Force continues to work on the issue. This is not helped by the fact that small denomination coins like the penny or nickel are often stuffed into a coin jar or lost behind the proverbial sofa, with the Task Force’s ‘Get Coin Moving’ campaigns asking consumers to return their coin into circulation by depositing it, exchanging it, or donating it.
Another issue shared by the penny and nickel is their specific composition impacting their overall cost of production, particularly as material costs continue to rise. The price of zinc has remained relatively steady over the last few years, but is still higher than a decade or so ago, whilst copper and nickel prices have nearly doubled over the same period. This impacts the nickel most, which is comprised of 75% copper and 25% nickel, with the penny composed mostly of zinc (97.5%) plated with copper (2.5%). The composition of the nickel in particular could be adjusted to either a higher copper level, for example, or utilise an alternative metal such as aluminium. Any composition adjustments would, however, have to take place at the legislative level.
President Trump’s directive only referred to stopping the production of new pennies, with legal experts writing that the Secretary of the Treasury does have some discretion over the suspension of penny production.
There is some confusion as to who holds the power over the penny, with any complete withdrawal likely to involve the US legislature. Congress determines currency specifications, including metal composition, denomination and sizing, and so any amendment to the currency structure of the US will require its approval.
Bi-partisan support for legislation may prove difficult, with recent legislative attempts to either suspend the penny or amend its composition failing to advance at various stages. The Coin Metal Modification Authorization and Cost Savings Act of 2023 – which looked to change the metals used in coin production – did have bipartisan support but failed at the Senate Committee stage. A new bill was introduced in the House of Representatives earlier this month, aiming to ‘suspend the production of the penny and nickel, to require the Comptroller General of the United States to carry out a study on pennies and nickels, and for other purposes’. It will be interesting to see whether this proposal advances.
Legislation would likely also need to be drawn up in the case of any form of cash rounding, to ensure terms are clear for where and when businesses can round prices up or down to the nearest 5 cents. Uncertainty over how this would affect goods prices, and what rounding regulations would be put in place, is another concern for those opposed to the removal of the penny.
This article is by no means any exhaustive list of arguments in favour or against either the continuation of penny minting or its existence as legal tender. Not commented on here are the purchasing power of the penny as a single unit (arguably little to none given inflationary pressures) and attachment to the existing denominational structure.
As mentioned at the beginning of this article, this is hardly the first time, and nor will it be the last, that the 1 cent coin is scrutinised. As the current administration looks to save a significant chunk of change wherever found it remains to be seen whether the humble penny will be scrapped. Given the lack of agreement over the issue, it seems unlikely.
