Gary’s Q&A

Listener question & Gary’s response · Transcript passage

Let’s jump right in with the first question. Dan Banowetz asks, Should we get rid of the US Penny? They cost more than their worth and seem to be unnecessary.

The short answer is yes, we should stop manufacturing them. That doesn’t mean we are getting rid of them, however.

As you mentioned, we lose money on every penny we create because the materials and the pressing cost more than the actual coin. The difference in the value of the money and the cost to make it is known as seinorage. The penny has a negative seignorage, which is a big signal that it is no longer worth making.

This is entirely a function of inflation. You literally can’t buy anything anymore for a penny. Growing up, you could at least put a penny in a gumball machine and get a gumball out. You can’t even do that anymore, assuming you could find a gumball machine.

The penny has been studied extensively and what we’ve found is that most people don’t even use them. They quickly leave circulation as people put them in coffee cans or piggy banks because they don’t want to carry them around. People literally give them away in take-a-penny containers.

This wouldn’t be the first time we got rid of a low-value coin. In the 19th century, the US had a half penny that it eventually stopped making.

The way you do it is you don’t ban the penny, you just stop making new ones. All pennies currently in circulation would still be legal tender. Over time, they will end up at banks and will be retired, but if you have any pennies, you can still use them.

There are other countries that have done this. Canada stopped making pennies a few years ago. Prices are still priced normally and are charged to the nearest cent. If you pay with a credit or debit card, you pay the normal price. If you pay with cash, you just round up or down. The most the price would be adjusted would be 2 cents, which would be a trivial amount for most transactions.

This will probably have to be addressed at some point with nickels, as well, as it currently costs over 10 cents to produce a single nickel. The cost might be lessened by changing the metals used, but it will still be an issue as inflation gets worse.