Why We Still Debate the Penny

The NY Times recently explained that we have a “Perpetual Penny Paradox.” They were referring to the whopping 240 billion (or so) pennies that we keep at home, ignored and unspent. After receiving them as change, we leave our pennies in jars, behind couch cushions, or even in the garbage. Consequently, the mint has to make new ones.

The U.S. Mint says it loses more than $100 million a year from penny production, Although the 2023 report from the Mint said they had decreased penny shipments, they keep on making them.

Should they?

The Penny Debate

We can cite a slew of reasons for eliminating the penny.

The first is always the expense. A penny costs slightly more than three cents to produce and distribute. Consequently, the government winds up spending more than the penny’s recipients pay for it.

The seigniorage is what the Mint receives for its pennies. Naturally, when cost is more than revenue, you lose money:

In addition, pennies are increasingly less spendable. Hit hard by inflation, pennies have diminsihed purchasing power and waste the time it takes to count them at the cash register.

Meanwhile, penny defenders also focus on production and spending. Because our pennies are mostly zinc with a thin copper-plating, the zinc industry wants to keep them. Furthermore, they say that we need pennies to avoid rounding up prices. However, shown by a Wake Forest economist’s research, the purchase prices that end with .99 usually have a tax that ups the amount. At this point, some say eliminating the penny would boost demand for nickels that cost even more to produce.

Finally, rather unexpectedly, we can add some TSA data. At airport checkpoints, the cash and coin that people forget to retrieve is recorded by the TSA. Because they left close to $1 million in 2023–approximately double the 2012 amount–we could say they are using more change and want their pennies. However, if we account for inflation and the number of people passing through checkpoints, the math says there was no change from 2012.

But still, the penny’s proponents say if we are using physical money, it should remain:

Our Bottom Line: The Money Supply

Our coin supply begins with an order from the Federal Reserve. After “buying” the pennies (nickels, dimes, quarters, half dollars) that were made by the Philadelphia or Denver Mint, they distribute them to banks. The bank also might have gotten its change from Coinstar. As the company that will swap your coins for paper currency, it takes bags of coins to banks. From there, they re-enter the economy when retailers, for example, withdraw them.

Looking at the big picture, we are really asking about what our money supply should be composed of. And that takes us to why we demand money. We use money for 1) transactions, 2) for precautionary reasons, and 3) for speculation. Every day, we use money to buy goods and services. We also want to be able to accumulate money as the savings and checkable deposits that we might need for an emergency. And finally, because some forms of money pay interest, they are categorized as satisfying our “speculative” demand for money–using money to make more money.

I suspect that the three functions of money won’t compell us to keep the penny. But still, we seem to care.

My sources and more: This NY Times article reminded me it was time to return to the penny debate. From there The Conversation had the TSA details. But it was the Federal Reserve and this report from the Mint that had the key facts.

Please note that parts of “Our Bottom Line” were in a previous econlife post.