The penny: most people would rather toss it into convenience store trays or coffee shop tip bars than carry around in their pockets. It’s the coin most frequently seen laying on streets, sidewalks or parking lots.
While it might seem foolish to waste money (however small an amount), the public’s disregard for pennies is not as irrational as it sounds. In fact, it now costs more than one cent to produce a penny in the first place.
How did the penny came to cost more than its face value?
Copper & Zinc Price Increases
Pennies, as you may know, are made of 97.5% zinc and 2.5% copper. Therefore, the costs of producing pennies is tightly linked to fluctuations in the prices of these two commodities. This has been a negligible concern for most of the penny’s life, as copper and zinc prices have typically been quite manageable.
But in 2007, The Washington Post reported that in fiscal 2007, the U.S. Mint lost $31 million in making 6.6 billion new pennies and $68 million in making nickels. By 2008, copper prices had trippled since 2003, according to Fox News, while the price of zinc quadrupled. In 2008, it cost 1.26 cents to produce a single penny for circulation, compared with 1.67 cents the previous year. At the end of 2007, the cost of making a nickel was nearly ten cents.
In May, the Wall Street Journal reported that the costs of minting a penny have gone up to nearly 2 cents, while those of nickels were up to nine cents each.
Historical Production Costs
The rising cost of penny production is not an extremely recent phenomenon. In fact, the last time a penny cost less than one cent to produce was in 2005. A helpful chart from CoinUpdate.com displays rising costs in all but three years since 2001. Despite a brief dip in 2008, rising copper prices sent penny production costs right back up into the 1.6 cent range in 2009:
|Fiscal Year||U.S. Mint Costs|
In total, CoinUpdate.com found that the U.S. Mint lost a combined $22 million producing nickels and pennies in fiscal 2009. And while gains from dimes and quarters have made up for these losses, the fact remains that total U.S. Mint gains would be substantially higher without absorbing ongoing, yearly losses from pennies.
The ever-rising cost of the penny has prompted some to ask the obvious question: why not stop making them? It is the politically unpopular choice, to be sure. In 2008, then Treasury Secretary Henry Paulson conceded that it made pragmatic sense but was politically unfeasible, and that he had no intentions of attempting it. U.S. Mint Director Edmund Moy also told Fox News that “people still want pennies, which is why we’re still making them.”
A Penniless Future
Despite what people might say about pennies, there is no denying how casually we dispose of them. Presumably, people would not throw coins into ponds at parks and shopping malls if they were truly vital to day to day commerce. Nor would it be especially common to see them laying flattened on railroad tracks. And there certainly would not have been an entire sea of them (pictured above) at Rockefeller Plaza. It seems that the public’s professed feelings about pennies are a world apart from their revealed preferences about them.
There are also the potential savings at stake. At a time when the U.S. is in the teeth of a recession, there are plenty of superior uses for $22 million than producing dead weight currency. Retailers, too, incur penny-related costs of their own. More than 10 years ago, in a 1999 article, Time Magazine estimated that Walgreens lost $1.3 million each year merely counting pennies.
Moreover, eliminating pennies would not create the economic chaos that many anticipate. A common worry, for instance, is that prices will rise if stores begin rounding to the nearest nickel. Yet as Time explains, rounding is standard, daily practice on military bases and in various foreign countries with no major corresponding price jump. Threes and fours get rounded to five, and ones and twos get rounded to zero.
When debit or credit cards are used (as is most common today), no rounding occurs at all. In any case, prices are determined by supply and demand, not the presence or absence of one-cent coins. If retailers could competitively charge more, they already would be.