The Wall Street Journal - Trump Wants to End Penny Production. Here Are the Pros and Cons. | WSJ
The discussion centers around President Trump's proposal to eliminate the penny, primarily due to its high production cost compared to its value. The U.S. Mint loses money producing pennies, costing 3.7 cents each while being worth only 1 cent. This negative seigniorage has persisted for nearly 20 years, driven by rising zinc prices and inflation. Advocates argue that eliminating the penny could save money and time, as the average wage in the U.S. is about $36 an hour, equating to one penny per second. However, opponents highlight potential drawbacks, such as the impact on low-income consumers who rely on cash and the possibility of increased costs for consumers, as seen in Canada where prices were rounded up after eliminating their penny. Additionally, concerns are raised about the nickel, which also costs more to produce than its value, suggesting further implications if the penny is removed. The decision to stop penny production requires Congressional approval, and while Trump has directed the Treasury to halt production, the transition would be gradual.
Key Points:
- The U.S. Mint loses over $85 million annually producing pennies, which cost 3.7 cents each but are worth only 1 cent.
- Eliminating the penny could save time and money, as the average U.S. wage is $36/hour, equating to one penny per second.
- Opponents argue that removing the penny could negatively impact low-income consumers who predominantly use cash.
- Canada's experience shows that eliminating the penny led to prices being rounded up, costing consumers more.
- The nickel also costs more to produce than its value, indicating potential future issues if the penny is removed.
Details:
1. 🚫 Trump's Plan to Abolish the Penny
- President Trump proposes to eliminate the penny to reduce costs, which he views as an obvious measure to save money.
- Critics of the plan argue that cash, including pennies, benefits consumers by providing a low-cost, safer transaction option, especially for lower-income individuals.
- The initiative is part of a broader strategy to implement cost-saving measures across the government, inspired by successful examples from other countries that have phased out low-denomination coins.
- Historically, the penny has played a significant role in the economy, but its production cost now exceeds its face value, leading to financial losses.
- Supporters of the plan point to studies showing minimal economic disruption in countries that have eliminated similar coins, citing improved efficiency and reduced production costs.
- To address consumer concerns, the proposal includes measures to ensure rounding of cash transactions does not disadvantage consumers.
2. 🪙 The Great Penny Debate: Costs and Controversies
- The U.S. Mint lost over $85 million last year making more than 3 billion pennies, illustrating the high cost and potential inefficiency of producing pennies.
- Americans discard approximately $68 million in coins annually, indicating a low perceived value of coins, including pennies.
- The production cost of a penny in 2024 is nearly 3.7 cents, while its face value remains 1 cent, leading to a negative seigniorage for almost 20 years.
- Rising metal costs, particularly zinc, contribute to increased production expenses, exacerbated by inflation and higher costs for labor and equipment.
- Professor Robert Whaples argues that the average U.S. wage of $36/hour makes the effort to handle pennies inefficient, as it equates to one penny per second, wasting time if handling takes more than a second.
- Legislation efforts to eliminate the penny have been ongoing since 1989, with at least four bills introduced to Congress.
- Advocates for the penny argue that cash transactions, including those with pennies, can be quicker than debit or credit transactions, challenging the claim that pennies slow down transactions.
3. 🇨🇦 Canadian Insights: Living Without Pennies
- Canada eliminated its version of the penny and now rounds all cash transactions to the nearest 5 cent interval, e.g., a $4.98 purchase is rounded up to $5.
- An economic analysis found that Canadian consumers paid approximately 3 million more Canadian dollars annually at grocery stores due to rounded prices.
- The additional $3 million paid by consumers is considered insignificant, leading to broad acceptance of the rounding practice.
4. 💵 Who Pays the Price? Impact on Low-Income Consumers
- Eliminating the penny could disproportionately affect low-income consumers who heavily rely on cash transactions due to limited access to banking services.
- A significant portion of the unbanked or underbanked population depends on cash, highlighting the essential role of physical currency in their daily transactions.
- Credit card companies pushing for a cashless economy may not benefit individuals without access to credit or banking facilities.
- Potential elimination of the nickel, which costs 14 cents to produce, could exacerbate financial losses and necessitate a reevaluation of coin production strategies to prevent further economic strain.
5. 🔄 Transitioning to a Penny-Free Economy
- The U.S. Mint will halt penny production, pending Congressional approval, as part of transitioning to a penny-free economy.
- President Trump's directive to the Secretary of the Treasury, Scott Bessent, to stop minting pennies signifies a major policy shift.
- The transition will be gradual, with pennies remaining in circulation for several years to mitigate immediate economic impacts.
- The policy aims to address the inefficiencies of penny production costs versus their practical utility.
- Consumers and businesses are expected to adjust to rounding transactions to the nearest five cents, minimizing economic disruption.