Does it make cents to get rid of the penny?
This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.
A couple of you wrote in with questions about pennies. William Mercker, from Bourbonnais, Illinois, asks:
About 5 to 9 billion pennies are minted each year. Where do they all go? Does the government melt down 5 to 9 billion pennies each year? Why are we not flooded with pennies?
Eric Coen wanted simply to know: Why is the U.S. still making pennies?
They end up tossed on the street, hidden under couch cushions and trapped in piggy banks.
Yet despite our apathy toward the penny, the U.S. Mint continues to produce billions of them each year.
We’re not physically flooded with pennies, per se. But there’s a “hidden flooding” happening, said Daniel Soques, an associate professor of economics at the University of North Carolina, Wilmington.
“People just have no desire to hold on to them because of their value,” he said.
Even investing the effort to grab one off the floor might not be worth the payback.
“We treat pennies as though we don’t respect them. We leave a penny there and we don’t even bend over to pick it up. And it’s because there’s been a lot of inflation and economic growth and the value of our time has gone up and up and up,” said Robert Whaples, an economics professor at Wake Forest University.
“The average earnings per hour in the United States is now a little bit over $30. And so that means the amount of time it takes to earn a penny is a second or two,” he added.
So why do we still make pennies?
Canada, Finland, the Netherlands, Sweden, Australia and New Zealand have all removed the penny from circulation, so its elimination wouldn’t be unprecedented. But we haven’t done anything about the penny because a kind of inertia has settled in.
“There’s no real lobby to get rid of the penny. There is a lobby to not get rid of the penny,” Whaples said.
That lobby is a group called Americans for Common Cents. Back in 2014, the Center for Public Integrity reported that the organization is actually a front group for a zinc producer that supplies the U.S. Mint with zinc coin blanks used in penny production. (At the time, ACC’s executive director denied that it was a front group.)
Eliminating the penny would also require congressional approval, and lawmakers arguably have more pressing matters to deal with.
“Congress, probably if they had the time to think about it, would say, ‘Let’s stop doing pennies,’” Whaples said. “But Congress is so busy with other things. Their decisions are billion- and trillion-dollar decisions. And this one just falls below the radar.”
Although people don’t necessarily respect the penny, it holds sentimental value for some. “They’re shiny and they’re pretty and you first learned about them when you were 4 years old and you thought they were so cool,” Whaples said.
And for the superstitious, the penny is a harbinger of good fortune (at least, if it’s heads up). “Some believe that any found penny will bring good luck, while others believe that only a penny lying face-up should be picked up. The latter thought stems from an ancient belief that there is a battle between good and evil,” according to Checkiday.com, a website of holiday listings.
Andrew Keinsley, an associate professor of economics at Weber State University, said the U.S. penny is tied to the country’s identity. To remove it would mean removing a unit of currency that honors Abraham Lincoln (the most popular president, according to a YouGov.com poll). “A lot of people just simply don’t want to see that go,” Keinsley said.
The Lincoln penny debuted in 1909, although the U.S. Mint has produced different iterations of a one-cent coin for centuries. Its first one-cent piece, known as the large cent, was created in 1793.
The case against the penny
On the flip side, there are plenty of reasons that experts say abolishing pennies would make sense.
“If you think about currency in different denominations, they’re really supposed to make transactions easier. And the penny no longer provides that,” said Soques of the University of North Carolina. “It can be cumbersome, and it’s frustrating to have to go to the bank if you’re a business and make sure you have enough pennies.”
Soques noted that high inflation rates over the past couple of years have driven down its value.
On top of that, producing these coins costs the U.S. Mint a pretty penny. The mint’s 2022 annual report revealed that it costs 2.72 cents to make 1 penny and 10.41 cents to make a nickel. In comparison, coins like dimes, quarters and the half-dollar cost less to produce and distribute than their face value.
Keinsley of Weber State said that if the value of the materials used to make pennies gets high enough, black markets could pop up. People could theoretically collect pennies, melt them down for their copper and zinc, then sell these commodities for higher prices, he explained.
“So it’d be pretty easy to walk into a bank, say, ‘Hey, you have to exchange this single dollar for pennies,’” Keinsley said. “OK, I get 100 pennies. I can melt them down and sell them and make more than a dollar off of that.”
But two things are preventing this from happening, he said. A) It would be illegal. B) The effort required means it wouldn’t be particularly profitable — at least not yet.
“As the prices of those commodities continue to rise and the overall value of the penny continues to fall with inflation, that becomes more and more of a problem,” he said.
Keinsley pointed out that in the past, the U.S. has discontinued small denominations of currency without much of an impact. “The U.S. used to mint a half-cent coin up until 1857, at which point, it phased that out and started rounding to the nearest penny,” he said.
One argument against the penny’s elimination is that consumer prices would be rounded upward, turning a $1.99 item into a $2 item. But Whaples of Wake Forest studied this issue by taking data from convenience store transactions in various states, including Alabama, Georgia and Virginia.
When prices were rounded to the nearest nickel, it was pretty much a coin toss whether those prices inched up or took a step down, he found.
“I think there are still people who think that there’ll be rounding up, and you’ll get nicked by a penny many times and it’ll help the seller and hurt the consumer a little bit,” Whaples said. “That’s the perception. But I don’t think it’s the reality.”
Whaples’ 2 cents on the issue is that the penny should be retired. He’s spoken against it publicly for more than a decade and had expected that it would be gone by now.
Yet the humblest of coins has proven its resilience.
“I would not be surprised if it doesn’t go away during my lifetime, at this point,” Whaples said.
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