US President Donald Trump has announced his intention to phase out pennies, citing the cost of producing them as a waste. The Department of Government Efficiency, led by Elon Musk, shares similar concerns about the economic inefficiency of minting pennies.
The US Mint produces over 3 billion pennies each year, with a production cost of 3.7 cents per penny. This translates to a annual expenditure of $85 million. While eliminating pennies might lead to an increased reliance on nickels, which are also economically inefficient, there is precedent for countries like the UK and Australia to stop producing low-denomination coins.
Other countries that have eliminated their lowest-value coins, such as Canada, New Zealand, and Sweden, have found ways to manage cash transactions without abolishing small denominations entirely. In some cases, prices decrease after eliminating lower denomination coins, as market competition takes over.
The US decision on phasing out pennies would require consideration of how to treat existing coins in circulation. Some countries that have eliminated their penny version let the ones already produced remain in circulation, while others round cash transactions to the nearest 5-cent increment. Ultimately, experts argue that consumers should not lose significant amounts due to rounding, as the odds are balanced between rounding up or down.
However, some critics point out that eliminating small denomination coins can have unintended consequences on low-income individuals who rely heavily on cash transactions. The US is experiencing a decline in cash-based transactions, with 18% of transactions being cash-based as of 2022.
Source: https://money.com/get-rid-of-pennies