Getting Rid of Pennies: Why the U.S. Is Phasing Out the 1-Cent Coin
Discover why the U.S. is eliminating penny production and what it means for your wallet.
The End of an Era: Why America Is Phasing Out the Penny
For more than two centuries, the penny has been a staple of American commerce and everyday life. However, that era is coming to an end. The U.S. Treasury Department has announced that it will stop producing new pennies for circulation by early 2026, marking a significant shift in American monetary policy. In May 2025, the Treasury placed its final order for penny blanks—the flat metal discs that the U.S. Mint transforms into coins—and these remaining blanks are expected to run out by the start of 2026. This development has sparked widespread discussion about the financial impact on consumers, taxpayers, and the broader economy.
The Cost of Producing Pennies
The primary driver behind the penny’s elimination is production cost. According to the U.S. Mint’s 2024 Annual Report, producing and distributing a single penny costs 3.69 cents—nearly four times its face value. This means that every penny produced represents a financial loss for taxpayers. In 2024 alone, the Treasury incurred a seigniorage loss of $85.3 million on penny production, despite minting more than 3 billion new pennies.
This economic inefficiency has become increasingly untenable. As economist Robert Whaples points out, “It’s time to eliminate the penny. It saves the taxpayers money, and year over year those savings add up.” The Mint continues to produce billions of pennies annually because people don’t keep them in circulation—they end up in jars, couches, or are simply discarded. An estimated 240 billion pennies are currently in circulation but unused, creating an endless cycle of replacement production.
The Time Value Problem
Beyond mere production costs, there’s a compelling time-value argument for eliminating the penny. Americans earn approximately one cent every two seconds on average. This means that if retrieving and using a penny takes longer than two seconds, the transaction actually consumes time more valuable than the coin itself. In an increasingly digital economy where fewer Americans use cash—only 18 percent of transactions involve physical currency according to the Federal Reserve—the penny’s utility continues to diminish.
Environmental and Logistical Concerns
Beyond financial considerations, there are environmental and logistical implications to penny production. Manufacturing billions of coins annually consumes significant resources and generates waste. Additionally, the government faces a storage and distribution nightmare with so many unused pennies in circulation. Moving these coins between the Mint, banks, and retailers is time-intensive and costly.
The Rounding Tax: Impact on Consumers
The primary concern about eliminating the penny is how cash transactions will be handled. When pennies are no longer produced, businesses are expected to round cash transactions to the nearest 5 cents. A common rounding rule works as follows: transactions ending in 3, 4, 8, or 9 cents will be rounded up, while those ending in 1, 2, 6, or 7 cents will be rounded down. Transactions ending in 0 or 5 cents require no rounding.
Research using data from the 2023 Diary of Consumer Payment Choice estimates that this rounding tax could cost U.S. consumers approximately $6 million annually. However, other research suggests the impact may be negligible. Using cash register data from convenience stores along the East Coast, economist Robert Whaples found that prices ending in nine are no more common than any other digit, meaning rounding up and down essentially balance out.
The Nickel Question
Some observers have questioned whether the nickel might be next to face elimination. After all, the U.S. Mint reports that producing a nickel costs approximately 14 cents, significantly more than the 3.69 cents required to produce a penny. However, experts believe the nickel will remain in circulation for the foreseeable future because nickels behave differently than pennies. Nickels are regularly carried in pockets and purses and are consistently returned to stores for purchases, maintaining active circulation.
By contrast, in 2024, the Mint produced only 113 million nickels (approximately one per every three Americans) compared to 3.2 billion pennies. This dramatic difference reflects the reality that pennies simply don’t circulate effectively. Once a penny is given as change, it’s likely to be discarded or stored rather than reused in subsequent transactions.
Global Precedents: Learning from Other Nations
The United States isn’t pioneering this transition. Several countries have successfully eliminated their low-denomination coins, providing valuable lessons for American policymakers. Canada discontinued penny production in 2013 and transitioned to rounding cash transactions to the nearest five-cent increment. Importantly, the mathematical concept of one cent still exists for digital and credit transactions; only cash transactions are rounded.
When Canadians cashed in their pennies following the elimination, the coins were recycled, and the recovered metal offset the recycling and logistics costs. To minimize consumer confusion, Canada ran an extensive informational campaign that included signs and charts for cash registers. New Zealand and Australia have similarly eliminated their low-denomination coins and successfully managed the transition.
Will Pennies Disappear Immediately?
An important clarification: U.S. pennies will remain legal tender even after production ceases. Consumers can continue using existing pennies in transactions, though their availability will gradually decline as existing coins fall out of circulation. This gradual transition allows the economy to adjust without disruption. However, businesses will increasingly round cash transactions to the nearest nickel as penny availability diminishes.
What About Future Denominations?
While the penny is being phased out now, experts don’t anticipate the nickel facing elimination soon. Historical precedent suggests such changes occur gradually over many years. The United States eliminated the half-penny in 1857, creating a gap of more than 160 years before the penny faced similar scrutiny. Even if future inflation eventually makes the nickel impractical, that transition is likely decades away.
Opposition and Stakeholder Concerns
Efforts to eliminate the penny have faced resistance from certain quarters. The zinc industry, which supplies the metal used in penny production, has lobbied against discontinuation, arguing that eliminating the penny could negatively impact consumers—particularly lower-income individuals who rely on cash transactions. Some charities have also raised concerns, noting that spare change donations represent a meaningful funding source.
However, proponents counter that the documented savings to taxpayers and the improved efficiency of the monetary system outweigh these concerns, particularly as cash usage continues to decline nationally.
Frequently Asked Questions
When will penny production officially end?
The U.S. Treasury placed its final order for penny blanks in May 2025, with production expected to cease by early 2026 when these remaining blanks are exhausted.
Will existing pennies stop being valuable?
No. Pennies will remain legal tender indefinitely. They simply won’t be produced anymore, and their availability will gradually decline as they fall out of circulation.
How much will the rounding tax cost consumers?
Estimates suggest approximately $6 million annually, though some research indicates the impact may be minimal as rounding up and down largely balance each other out.
Why not eliminate the nickel instead since it costs more to produce?
Nickels circulate effectively and are regularly reused in transactions, whereas pennies end up in jars or are discarded. The Mint produced only 113 million nickels in 2024 compared to 3.2 billion pennies.
How did other countries handle penny elimination?
Canada and other nations implemented gradual transitions with public education campaigns. They recycled collected coins and rounding rules for cash transactions to the nearest low-value denomination.
Will the quarter be eliminated next?
Quarters are expected to remain in circulation for a much longer period. Elimination decisions typically occur gradually over many decades as inflation erodes coin value.
References
- Rounding Up: The Impact of Phasing Out the Penny — Federal Reserve Bank of Richmond. 2025-11-29. https://www.richmondfed.org/publications/research/economic_brief/2025/eb_25-27
- Why eliminating the penny makes sense — Wake Forest University News. 2025-02-13. https://news.wfu.edu/2025/02/13/why-eliminating-the-penny-makes-sense/
- Should the United States Eliminate the Penny? — McGraw Hill Higher Education. 2024-10-01. https://www.mheducation.com/highered/blog/2024/10/should-the-united-states-eliminate-the-penny.html
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