Why Eliminating the Penny Makes Sense

By eliminating the penny, the U.S. government will save some money:

Spending 3.69 cents to make every penny, the Mint, by stopping, will no longer lose $85.3 million and save $213 million annually.

Eliminating the Penny

When the Mint runs out of these blanks, it will stop producing pennies: We can expect the last batch during the beginning of next year:

History

Starting with the Coinage Act of 1792, we established the Mint that soon made the first pennies.

In 2006, the penny’s cost began to exceed its face value. Called negative seignorage, the amount the government gets for “selling” them to financial institutions is less than it costs to make and ship them.

In 2012, a 1909 penny traveled to Mars on the Curiosity rover. Sitting in Martian sand, it comes in handy as a calibrating tool when NASA figures out rock sizes.

Usage

Without the penny, prices could change. Thinking of the 18.3 cent federal gasoline tax as an example, 10 gallons adds $1.83 that could need to be rounded up to the nearest nickel. The result, according to some economists, is a “rounding tax.” Then, also, we lose the psychology of the 99 cents price tag– like $499.99– that makes us feel like we are saving money. Most importantly, though, we can’t forget that we keep $14 billion–maybe 60% of those that circulate– of our pennies in jars. With so many hoarded at home, the Mint has to make more and lose more money.

Our Bottom Line: What is Money?

To be considered money, a “commodity” needs three characteristics:

1. Having a known worth, it should function as a unit of value.
2. Accepted for most transactions, it should be a medium of exchange.
3. Retaining its value, it should be storable.

For a University of Toronto economist, the key consideration is whether the penny remains a medium of exchange–not its negative seignorage. And he concluded that because it is increasingly less of a medium of exchange, eliminating it makes sense. In a digital economy, as we increase our march toward cashlessness, the penny’s absence will have a minimal impact.

With coin production down, I doubt that we will miss them:

My sources and more: Among the many penny articles we could have looked at, WSJ, Axios, and Sherwood were excellent possibilities. So too was the academic perspective and this report from the mint. And finally, we also contemplated the future of the dime and the nickel.

Please note that our featured image by Emil Lendof is from WSJ .