It's now common to see a sign on storefronts across America that says: “Due to shortage of coins from the Federal Reserve, please pay with exact change or use credit.” This advisory is another side effect of the pandemic and the result of consumers being housebound. Mandatory lockdowns across the country restricted people from unloading change at stores, causing a serious disruption in coin circulation patterns. The problem presents an opportunity for reform that could save taxpayers money.
The U.S. Mint produces coins and currency. Banks and other depository institutions purchase new currency as needed from the Federal Reserve. As circulation patterns were disrupted last year, the Federal Reserve placed limits on coin orders. Limits on pennies, nickels, dimes, and quarters were swiftly reinstated in May as coin orders from banks increased in March, exceeding the number of coins that banks were receiving in deposits.
Experts broadly recognize that this is not a manufacturing constraint. Mint Director David Ryder agrees, stating “We cannot manufacture our way out of this problem.” The U.S. Mint has reached its full production capacity, manufacturing 14.8 billion coins in 2020 - a 24 percent increase from the 11.9 billion coins produced in 2010.
To combat the coin shortage, the Federal Reserve created the U.S. Coin Task Force in July 2020. The Coin Task Force was formed to “identify, implement, and promote actions to address disruptions to coin circulation, continues to meet regularly until coin circulation normalizes.” This call-to-action campaign is meant to encourage consumers to deposit coins at the bank.
Meanwhile, the pandemic has increased the use of contactless payment methods. Thanks to social distancing and the rise of digital payment services, consumers and merchants across the world are reducing their reliance on cash. This may prove to be the perfect time to retire the penny.
In a 2019 report, the Government Accountability Office (GAO) recommended that Congress consider halting penny production and adjusting the metal content of circulating coins. Despite the GAO’s recommendation, the Mint was unable to find a way to produce pennies from cheaper materials.
Currently, each penny costs twice as much to produce than it is worth. The U.S. Mint lost $69 million manufacturing pennies in 2018, and those costs are likely to increase due to rising copper and zinc prices. The U.S. Mint estimates it could save $250 million over ten years if they suspended penny production.
The penny debate has a long history in the United States, and attempts were made to retire the low-value coin in 1990, 2001, and 2006. These debates reached a head in 2006 when Representative Jim Kolbe (R-AZ) introduced H.R.5818, Currency Overhaul for an Industrious Nation (COIN) Act. This legislation aimed to set up a rounding system to the nearest nickel for cash transactions, decreasing the demand for pennies. For instance, if your total ends in $.01 or $.02, the bill is rounded down to $.00. If it ends in $.03, $.04, $.06, or $.07, the bill is rounded to $.05. Amounts ending in $.08 or $.09 would be rounded to $.10. However, credit card, money order, check, and electronic transfer purchases would still be calculated to the cent.
In 2009, NTU wrote, “The average taxpayer would shake his or her head in dismay at the logic involved in the U.S. Mint producing a penny at the cost of 1.4 cents per unit, adding up to a $20 million annual loss… the price tag of manufacturing pennies actually exceeds their worth at face value.”
Unfortunately, the COIN Act failed, and an alternative bill has yet to be introduced. Despite the lack of legislative action, the penny’s retirement makes even more sense now. If the United States eliminated the penny, it would join countries such as Canada, Denmark, Australia, and Ireland as well as the United States Department of Defense which discontinued the use of the penny at all overseas military bases more than 30 years ago.
Eliminating the penny from circulation could save the US government close to $85 million annually, yet this savings initiative is often met with resistance from groups with a vested interest in its existence in order to keep selling the metals used in its production. While its retirement would result in savings, it doesn’t look like the one cent coin is going away anytime soon.