Thoughts for Your Penny

I’m glad that co-blogger Scott Sumner took on one of the fears about ending the production of pennies.

His post made me realize that I had neglected to post on my article on the demise of the penny that I published at Hoover in March. The article is “Thoughts for Your Penny?“, Defining Ideas, March 13, 2025. No, I didn’t come up with that great title. My editor did.

Some highlights:

The US government makes a pretty penny (pun intended) on seigniorage. It’s not as much as it used to be because more and more people use credit cards and even cryptocurrency to buy goods and services. Still, it’s a good amount.

The biggest gain from seigniorage is on the $100 bill. Printing one costs the federal government just 9.4 cents. So, when the feds spend this $100, they make a nice profit of $99.90. Not bad. Printing a $1 bill costs the feds 3.2 cents. So even on a $1 bill, the feds make 97 cents.

But minting small coins loses money for the feds. In its 2024 Annual Report, the US Mint reports the cost of producing each coin denomination. The cost of producing a penny was $0.03. In other words, the cost of producing a penny was three times the value of the penny. Interestingly, the feds went underwater even on the nickel, whose cost, at $0.11, was over twice the value of the nickel. That’s why I stated earlier that the federal government should stop producing nickels also. It isn’t until you get to the dime that you find a coin that the feds make money on. Interestingly, the cost of producing a dime, at $0.045, is less than the cost of producing a nickel.

That surprised me at first, but it shouldn’t have. First, the nickel is bigger than the dime. Second, the nickel and the dime are made up of almost the same metals. The nickel is made up of 75 percent copper and 25 percent nickel; it’s actually an alloy called cupronickel. Interestingly, since 1866, except for a period during World War II, when the US government wanted nickel for military uses, nickels have been made of cupronickel. The dime is made up of a copper core within an outer layer of cupronickel; the overall composition of a dime is 91.67 percent copper and 8.33 percent nickel. Unlike with the nickel, the dime’s composition has changed dramatically. Before the Coinage Act of 1965 removed silver from dimes, dimes were composed of 90 percent silver and 10 percent copper. I still have some silver dimes and quarters hidden away in my sock drawer. It should be obvious why the feds changed the composition of the dime: with increases in the price of silver, producing a dime the pre-1965 way was a losing proposition.

And:

Because the bigger gains would come from getting rid of the penny, not the nickel, that’s what I’ll focus on here. How would we make the transition?

First, no real transition would be necessary for the vast majority of transactions. Most people use credit cards or debit cards to buy items. If you bought an item on your Visa card for, say, $19.99, the merchant could charge you $19.99. No penny would need to change hands. Let’s say that that’s the only thing you bought that month and that you pay off your credit card in full each month. You would pay the credit card either by transferring funds from your bank electronically, or, as is rare now, writing and sending in a check. Again, no pennies would be necessary.

So, the only transition required would be for people who pay cash. How would that work? We can look to Canada for guidance. Under Conservative former prime minister Stephen Harper, Canada’s Royal Mint quit producing pennies in May 2012, and Canada’s government stopped distributing them in February 2013. I go to my cottage in Canada every summer and the few times I have paid cash, it has been seamless. If the bill came to, say, $19.97, the cash register rounded down to $19.95. But if the bill were $19.98, the cash register rounded up to $20.00. Interestingly, pennies are still legal tender in Canada, but for the past ten years, I have not seen anyone using them. Gone are the days with the little dish on the retail counter labeled “Take a penny, leave a penny.” There’s no need.

Read the whole thing.