The United States has used the same billing and coinage system for many centuries; however, due to the COVID pandemic and national coin shortage occurring simultaneously, economists and average consumers are wondering just how necessary some of these coins are.
Is it time for the penny to no longer be produced?
The U.S. mint, which is responsible for the production of coins, found themselves adversely affected by the COVID-19 pandemic just as many other businesses were.
According to USA Today, staffing at the mint has decreased, which many believe to have contributed to the coin shortage.
While this perspective does have some truth to it, according to the Federal Reserve’s website, “[b]usiness and bank closures associated with the COVID-19 pandemic have significantly disrupted the supply chain and normal circulation patterns for U.S. coins.
“While there is an adequate overall amount of coins in the economy, the slowed pace of circulation has reduced available inventories in some areas of the country.”
In other words, the coin shortage is not a result of the decreased employment within the mint, but rather caused by decreased employment from many entities that makes for less efficient business.
The Federal Reserve also stated on its website that, “[t]he Federal Reserve is working with the U.S. Mint and others in the industry on solutions. As a first step, a temporary cap was imposed on the orders depository institutions place for coins with the Federal Reserve to ensure that the current supply is fairly distributed.
“In addition, a U.S. Coin Task Force was formed to identify, implement, and promote actions to address disruptions to coin circulation.”
The website continues saying, “[s]ince mid-June, the U.S. Mint has been operating at full production capacity, minting almost 1.6 billion coins in June and is on track to mint 1.65 billion coins per month for the remainder of the year.
“As the economy recovers and businesses reopen, more coins will flow back into retail and banking channels and eventually into the Federal Reserve, which should allow for the rebuilding of coin inventories.”
While the US mint is on the path to financial recovery, the coin shortage did bring more attention than ever to the movement to discontinue the penny.
According to usmint.gov, it costs $0.0168 to produce a singular penny, or almost double its monetary value.
In addition to the production costs, according to retirethepenny.org, “[. . .] Walgreens and the National Association of Convenience Stores [found that] using pennies wastes 120 million hours of time per year in cash transactions with customers and retailers. While ousting a part of American economic tradition seems ill-advised, the United States would not be the first country to get rid of their smallest coin unit.”
According to retirethepenny.org, “The US would join a growing list of post-industrial countries that have eliminated the penny including Canada, Denmark, Australia, and Ireland.
The United States Department of Defense discontinued use of the penny at all overseas military bases more than 30 years ago.”
Military bases overseas now round up to the nearest nickel at base-exchange stores.
One country that ceased production of their version of the penny was Canada back in 2012.
According to the Canadian Mint’s website, mint.ca, “[t]he decision to phase out the penny was due to its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environmental considerations, and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general. The estimated savings for taxpayers from phasing out the penny is $11 million a year.”
It is important to note that the phasing out of the penny does not affect electronic transactions, only cash and coin based purchases.
Mint.ca also stated, “pennies can still be used in cash transactions indefinitely with businesses that choose to accept them,” meaning that while the pennies ceased to be produced, their value will still remain.
While Canada has proved successful without the use of the penny, many are still questioning the possible ramifications for the United States and its monetary circulation.
When asked about the possible effects on U.S. consumers, Dr. Craig Walker, Wheeler Professor of Economics at Oklahoma Baptist University said “[e]liminating production and use of the penny would have almost no effect on the U.S. financial system.
“The handling of currency is a cost to the financial system. In dollar-value terms, most transactions in financial markets are electronic so elimination of the penny would have no effect on those transactions.”
Walker continued, “[t]here are a large number of transactions that involve the use of coins or currency but the total value of those transactions is relatively small compared to the total value of all the transactions in the financial system.
“With no pennies, the coin and currency transactions would cost less for the financial system to process with little to no negative effect on consumers.”
In terms of other benefits, Walker also said that, “If [the United States’] eliminate[s] the usage of the penny [. . . consumers] would be able to round down half the time.” And while there are “transaction fees and infrastructure costs associated with cashless transactions,” it would ultimately lead to a decrease in theft and an increase in convenience for most people.
While this seems to be in the best interest of most consumers, Walker does acknowledge the fact that groups with a lower purchasing power could be more negatively affected by the discontinuance of the penny.
“As with many changes like this, the distribution of the costs and benefits of the reduced use of coin and currency would be unequal. High and middle-income households already use relatively little cash.
Low-income households often do not have banking relationships so they rely on cash transactions and might face higher costs as the acceptance of cash decreases,” Walker said.
To learn more about the penny visit http://www.usmint.gov.