Why McDonald’s Is Worried About a Penny

McDonald’s has a penny problem.

This is the story.

Eliminating the Penny

Two days ago, the U.S. Mint struck its final five pennies–a ceremonial end to 232 years of penny production. Stamped with a special mark, those final five will become a collector’s item that the Treasury expects to sell at a future auction. But because the real last batch was produced approximately two months ago, some stores are coping with a shortage. As a result, for cash transactions McDonald’s has to decide whether to round up or down to the nearest nickel.

USA Today concluded that a $9.39 McDonald’s tab could cost $9.40 while $12.06 would become $12.05:

Others though, including Jamba and Cinnabon are “recommending that franchisees round cash transactions in the guest’s favor.”

Whatever they decide though, some retailers are concerned. They worry that rounding up and down could violate consumer protection laws. Also, they wonder if it is all right that cash customers without the exact change will have different prices from everyone else. Furthermore, taxes complicate the situation when deciding whether to round before or after adding them.

And let’s not forget the psychology of the 99 cents price tag– like $99.99– that makes us feel like we are saving money.

Our Bottom Line: Negative Seignorage

Called seignorage, the government makes “profit” when it issues money if the face value is greater than the cost of producing and distributing it. By contrast, we wind up with negative seignorage when the cost exceeds the coin’s face value. At 3.7 cents, the penny was a huge negative. In 2024, the loss was $85.3 million.

So yes, the cost of making penny is the best reason to eliminate it:

Finally, and perhaps most crucially, a penny might soon not be money. After all, its miniscule value could mean it is no longer a medium of exchange.

My sources and more: Thanks to Reuters, Business Insider, USA Today, and Today for our penny stories. Then though, to consider the pros and cons of the penny debate, I recommend this report.