Should we get rid of pennies?
Apologies in advance to anyone who previously has allowed me to soapbox on how annoying the penny is and how each new president’s first executive order should be removing pennies from circulation. For those of you who haven’t, I hope you enjoy learning more about how the U.S. mint is literally coining money while destroying value simultaneously.
The case for eliminating pennies from circulation
Recently, a WSJ article noted that each year, Americans throw away up to $68 million dollars’ worth of coins (according to Reworld estimates). As a waste management company, Reworld, has been collecting $500k - $1M in coins per year by sifting through the garbage.
I’ve been in the penny eradication camp for some time but was surprised to learn that we really should be getting rid of the penny and the nickel, based on current production costs.
Penny and nickel production has been consistently a losing proposition for some time now.
The per unit cost of creating a penny in 2023 was 3.7 cents (loss of 2.7 cents per unit) and the per unit cost of creating a nickel was 11.54 cents (loss of 6.54 cents per unit).
Based upon reported figures, the mint has lost over $200M dollars per year the past two years on the production of the penny and the nickel (value created vs. cost to produce).
Would a penniless world work?
I’m not here to say that all coins should be done away with… although maybe they will be as the world progressively moves to a digital pay system. There are still old parking meters, vending machines, and laundry mats but many of the traditional coin-based machines are being digitized to accept credit and debit cards.
So what about cash purchases? How will you be able to give change? I think the most reasonable solution is to create a rounding system where we just round up or down to the nearest 10 cents, copying our neighbors to the north. Canada removed the production of their penny in 2013 and they currently round purchases to the nearest 5 cents.
Should we get rid of the dollar bill, too?
Just so all the coin enthusiasts don’t start throwing nickels at me… you should know I’m all for getting rid of paper one-dollar bills too. The wear and tear on them causes them to need replacement quite rapidly. Using a $1 coin would be more expensive upfront to create, but would last a lot longer.
Not so fast!
Pennies today weigh 2.5 grams and are comprised of 97.5% zinc and 2.5% copper. Nickels weigh 5 grams but are only 25% nickel and the remaining 75% is copper. So at current prices, each 1 cent penny is worth about 0.77 cents in materials. Each five-cent nickel is worth $6.13 cents. However, before you go melting down the old coins, know that it is illegal to do so (pennies and nickels) to profit solely from the value of the metal content.
Removing pennies from circulation – a big step
Here’s to the implementation of take a dime, leave a dime at your local convenience stores. There are numerous cultural barriers to removing pennies from circulation, and it may not happen in our lifetime. But that doesn’t change the merits of the argument.
Andrew Hoffarth, CFP® is a Lead Advisor with Financial Alternatives. When he’s not enjoying outdoor activities with his family, he excels at finding solutions for complex financial situations, allowing successful families to focus on what is most important to them. Schedule a time to chat with Andrew.
Sources
Adedoyin, Oyin. (2024, April 17th). The Wall Street Journal. Americans Throw Away Up to $68 Million in Coins a Year. Here Is Where It All Ends Up. https://www.wsj.com/finance/americans-throwing-away-coins-28ca794c
Unser, Mike. (2024, February 9th). Penny Costs 3.07 Cents to Make in 2023, Nickel Costs 11.54 Cents; US Mint Realizes $249M in Seigniorage. Coin News. https://www.coinnews.net/2024/02/09/penny-costs-3-07-cents-to-make-in-2023-nickel-costs-11-54-cents-us-mint-realizes-249m-in-seigniorage/
U.S. Mint. Circulating Coins Production. https://www.usmint.gov/about/production-sales-figures/circulating-coins-production
U.S. Mint. (2020 December). United States Mint, Department of the Treasury. 2020 Biennial Report to the Congress as required by The Coin Modernization, Oversight, and Continuity Act of 2010 (Public Law 111-302). https://www.usmint.gov/wordpress/wp-content/uploads/2021/01/2020-mint-biennial-report.pdf