The Cost to Produce a Penny

According to the U.S. Mint, it costs more than 3 cents to produce a single penny, significantly more than its face value. This is largely due to the rising prices of metals like copper and zinc, which make up the coin. In contrast, higher-denomination coins such as dimes and quarters generate a profit for the Mint, but producing pennies and nickels cost the government $179 million in 2023 alone.

Economic Impact

The difference between the production cost of money and its face value is called seigniorage. When coins like dimes and quarters are produced, they generate positive seigniorage, but pennies do the opposite. This loss, while small on a per-coin basis, adds up.

Eliminating the Penny

In addition to financial losses, penny production has environmental implications. The extraction and processing of zinc and copper not only consumes significant energy but also contributes to pollution.

Moreover, pennies tend to circulate poorly—many end up in jars or discarded (an estimated 240 billion pennies are unused), creating further inefficiencies. Divisibility as a characteristic of money is a very important principle. However, Americans are finding they need spare change less and less. In fact, Americans only pay with cash 18 percent of the time, according to the Federal Reserve. Most pennies issued by the U.S. Mint are used in cash transactions that necessitate giving out change but are never spent by the recipient. Since the pennies don’t re-enter circulation, replacement pennies are created, creating a never-ending cycle of penny production.

If all of these uncirculated pennies did return to circulation, it would create a logistical nightmare. The government would not have room to store them, and moving them (to and from the Mint, banks, retailers, etc.) would be time and cost-intensive.

Keeping the Penny

Efforts to eliminate the penny have faced resistance. The zinc industry, which supplies the metal used in penny production, has lobbied against discontinuation. Their argument hinges on the impact eliminating the penny could have on consumers, particularly those who rely on cash transactions. Some studies argue that rounding prices to the nearest nickel could result in consumers paying more over time, disproportionately affecting lower-income individuals who use cash more frequently. On the other hand, others say if prices were rounded up or down to the nearest nickel, the so-called rounding tax would be a wash. Additionally, some argue that charities greatly benefit from spare change donations.

Eliminating the penny would also require legislation, but many efforts to push through policy have met reluctance to chance. Instead, of pushing for the elimination of the penny, some bills have pushed for different metal compositions to reduce the cost of coins.

 

Solutions Around the World

Other countries, such as Canada, New Zealand, and Australia, have successfully eliminated their low-denomination coins. Canada stopped minting pennies in 2013 and transitioned to rounding cash transactions to the nearest five-cent increment. The mathematical concept of 1 cent remains, and credit transactions still abide by the penny; only cash transactions are rounded up or down. To address any consumer confusion, the government ran an informational campaign for years that included signs and charts for cash registers. When Canadians cashed in their pennies, the coins were recycled, and the penny metal offset the recycling and logistics costs. This approach could offer a model for the U.S. if policymakers decide to phase out pennies.

In the Classroom

This article can be used to discuss functions and types of money (Chapter 15: Money and the Financial System).

Discussion Questions

1.     Describe the never-ending cycle of penny production.

2.     Explain the stakeholder groups that could be negatively affected by the removal of the penny.

3.     Explain how Canada executed the removal of the penny and whether or not this solution would be viable in the United States.

 

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.