The Disappearing Penny: A Sudden shift Creates Chaos
The United States Mint has ceased production of the penny, a decision projected to save the goverment $56 million annually. While the penny itself consistently loses money for the Mint - offset by profits from other coin production and collector’s items which generated $182 million in seigniorage in 2024 – its removal from circulation is proving far from seamless,creating a ripple effect of logistical and legal challenges.
A significant contributor to the current situation is the American public’s tendency to hoard pennies, stashing them in jars or utilizing them for decorative purposes. This demand necessitates ongoing production, even as the coin’s economic viability dwindles. However, beyond public habit, a breakdown in the coin distribution network is exacerbating the problem.
The federal Reserve manages coin distribution through a network of roughly 170 coin terminals, utilized by banks for coin deposits and withdrawals. Currently, approximately one-third of these terminals have closed to both penny deposits and withdrawals. Bank lobbyists argue this closure is intensifying the penny shortage, preventing the movement of surplus coins from regions with ample supply to those experiencing scarcity.A Federal Reserve spokesperson confirmed that, as penny inventory depletes, the availability of deposit and order fulfillment locations will continue to fluctuate due to the Treasury‘s decision.
The lack of pennies is also creating a legal quagmire for retailers. Many states and municipalities prohibit rounding transactions up to the nearest nickel or dime, aiming to ensure parity between cash, debit, and credit card pricing. To avoid potential lawsuits, businesses are largely choosing to round down, absorbing the loss.Kwik Trip, a Midwest convenience store chain, estimates this practice will cost them around $3 million this year. Some retailers are attempting to mitigate losses by encouraging customers to donate their change to local charities.
A proposed solution, the “Common Cents Act” currently before Congress, would authorize rounding cash transactions to the nearest nickel, either up or down.While appealing to businesses,the potential for rounding up raises concerns about increased costs for consumers.
Notably, the Treasury Department has remained silent on the issue, failing to respond to requests for guidance regarding the penny shortage or its impact on retailers and banks.
The U.S. is not alone in phasing out low-denomination coins. However, previous transitions in countries like Canada and the United Kingdom were gradual processes, spanning years. Canada began eliminating its one-cent coin in 2012, continuing to redeem and recycle them a decade later. The UK’s “decimalization” - the shift from farthings and shillings – occupied much of the 1960s and early 1970s.
In contrast, the U.S.abruptly removed the penny from commerce without Congressional action or regulatory direction for banks,retailers,or states. This has prompted an unusual alliance between the retail and banking industries, both urging Washington to provide clarity and address the escalating issues.
As NACS’ Lenard succinctly put it, “We don’t want the penny back. We just want some sort of clarity from the federal government on what to do, as this issue is only going to get worse.”
