The U.S. Mint manufactured its last penny on Nov. 12, forcing retailers across the country to round cash transactions — a shift already creating logistical concerns and unexpected violations of federal regulations.
Although the transition has sparked nationwide confusion, American Numismatic Association Money Museum curator Doug Mudd, said the U.S. has a long history of phasing out low-value coins.
“In 1857, they got rid of the half-cent because it was no longer viable,” Mudd said. In the rest of the world — Canada in 2012, Australia, New Zealand — they’ve gotten rid of their cent equivalent.”
From an economic standpoint, Mudd said the decision was overdue.
“It’s three and a half cents to make a cent at this point, approximately,” Mudd said. “Why would we continue making it, costing us, the taxpayer, more to actually produce this coin than it’s worth and then it and more than its purchasing power?”
Stanford finance professor Darrell Duffie said that internationally, the U.S. has been slow to adjust.
“Most countries don’t have pennies anymore anyway,” Duffie said. “I think the only thing that’s different about the U.S. is that it’s quite conservative about changing its payment systems, and so it’s taken longer than many countries to get around to it. But other than that, I don’t think it’s going to affect much at all, and I bet you, most people will be happy they don’t have to deal with pennies anymore.”
But National Association of Convenience Stores general counsel Doug Kantor says the halt in manufacturing the penny has already caused major daily changes for businesses.
“We’re in the midst of a shortage, and most people don’t know it,” Kantor said. “It’s literally impossible at this moment for some stores in a lot of the United States to provide people with exact change.”
And Kantor said the scale of the issue is massive.
“Convenience stores as a whole do 165 million transactions a day,” Kantor said. “I can’t give you an exact number of cash transactions, but it’s somewhere around 10% of those, give or take. So you’re talking about millions of transactions every single day that happen with cash, and many, many of those deal with pennies.”
With few alternatives, retailers have begun rounding change totals to the nearest nickel — a practice that almost always hurts a store’s bottom line.
“Right now, what most stores are doing is giving you more change than you’re entitled to, rounding to the nearest nickel, essentially,” Kantor said. “But that means they actually, the store ends up losing a lot of money doing that.”
Duffie, however, said the losses are minor compared to entire revenue streams.
“The rounding up to the nearest nickel is like peanuts compared to the interchange fees that they have to pay with credit cards,” Duffie said. “Most stores are losing about 2 to 2.5% when people pay with credit cards … so they’re actually not really losing too much with the rounding.”
For Economics teacher Grant Blackburn both perspectives hold truth.
“To be fair, they’re both right,” Blackburn said. “If you’re a convenience store owner, you’re probably factoring that into the price of your goods and service … Five cents doesn’t sound like much, but multiply that by however many thousands of transactions and it’s going to add up.”
Yet Kantor said the bigger problem is legal. Rounding at checkout technically violates federal rules for the Supplemental Nutrition Assistance Program.
“The regulations for SNAP say you can’t treat the SNAP customer any better or any worse than a cash customer,” Kantor stated. “As a technical matter, whether the store rounds up or rounds down. They’re actually violating SNAP regulations, since people paying with card have to pay more than consumers paying with cash, and there’s nothing they can do about that.”
To combat these issues, Kantor said the industry is pushing for a legislative fix.
“At this point, we’re just trying to get legislation passed that would give clear legal authority and guidance for stores to be able to round transactions in an even way without being in violation of the law,” Kantor said.
But Duffie said he questions whether this should be a high priority.
“The government has more pressing issues to work on,” Duffie said.
Either way, Blackburn said the transition will likely be gradual for the public.
“It’s going to take a while to see it because pennies aren’t going anywhere, but at some point, they will disappear,” Blackburn said.
But Blackburn also said eliminating the penny could put further stress on the economy.
“Once we get rid of the penny, then nickels are going to suddenly become more popular, and this will actually exacerbate the cost problem,” Blackburn said.
Mudd, though, said the nickel may follow the penny into retirement.
“We’re also facing that problem with the nickel … it costs us something around almost 13 cents to produce a nickel,” Mudd said. “If they follow that same idea … then the nickel is on the chopping block, too, at some point.”
Despite its uncertain future, Mudd said the penny’s cultural and historical footprint won’t be forgotten.
“Nostalgia is the main thing keeping it around,” Mudd said. “In 1909, Congress decided to introduce Lincoln’s head on the coinage and it was a huge change … they were able to modernize the coinage of the time and celebrate one of our most famous presidents.”
And even without the coin itself, Mudd said the word will remain.
Mudd said, “I’m sure people will continue to use the word ‘penny,’ just as we use the word ‘penny’ now, 250 years after Americans stopped using British pennies as their coinage.”
