The look and feel of a penny have changed several times since the one-cent coin was first minted in 1792. The first design included an image of a woman with flowing hair, which symbolized liberty. This was replaced with a flying eagle in 1857 and the bust of Abraham Lincoln in 1909 to commemorate his 100th birthday. In 2009, four different penny designs representing the four major aspects of Lincoln’s life were issued to honor his 200th birthday. Also, the first pennies minted were larger than today’s pennies and made of pure copper, while today’s pennies are made of copper and zinc.At some point early next year, however, the US Mint will press the very last penny. The final order of penny blanks was issued in May and new pennies will only be manufactured for as long as they last. After this, no more new pennies will be put into circulation, though existing pennies will still be recognized as legal tender.Why Pennies Are No Longer Being Minted After 2026So why has the government decided to stop minting pennies, which have been in circulation for more than 230 years? One of the main reasons is simple economics: Due to rising material costs, the cost of manufacturing a penny (about 3.7 cents) is higher than the value of the coin itself. Halting penny production will save an estimated $56MM per year. In addition, it could prove beneficial to the environment by lessening copper and zinc mining.The concept of getting rid of pennies isn’t new — many in the government, banking, and retail industries have been floating the idea for years. The National Association of Convenience Stores urges eliminating pennies in order to speed transaction time for customers paying with cash. Convenience stores handle more cash transactions (approximately 32MM per day nationwide) than any other retailer group. Despite Benjamin Franklin’s timeless advice that “A penny saved is a penny earned,” most people today place very little value on pennies. Digital payments have lessened consumers’ reliance on small-denomination coins, and many customers paying in cash leave pennies behind at the checkout or don’t bother picking them up on the sidewalk or street. (So much for the saying, “See a penny, pick it up. All day long you’ll have good luck.”)In addition, despite there being an estimated 114B pennies currently in circulation, pennies are severely underutilized due to so many buried beneath couch cushions or stashed in coin jars or junk drawers. The US isn’t the first country to phase out its one-cent coins. Canada, Australia, and New Zealand have all done so effectively, with little impact on their economies, banking, or retail industries. In Canada, cash sales are rounded up or down to the nearest nickel, based on the total transaction amount.Impact on ConsumersJust because new pennies will no longer be minted doesn’t mean pennies are going away anytime soon. There’s no plan to destroy the billions of pennies currently in circulation, which the government has said might remain in circulation for decades and can still be used for payment even after new coin production stops. So you can relax if you have a jar full of pennies you’ve been waiting to cash in.However, the phaseout of the penny could have a significant impact on consumers, businesses, and community financial institutions (CFIs). Here are a few possibilities:
- Disproportionate impact on unbanked and low-income consumers. Low-income and unbanked consumers more often tend to pay in cash. Those transactions stand to be impacted the most due to potentially higher prices, if retailers round up to the nearest nickel. This puts pressure on consumers with the least ability to be flexible with their money, possibly deterring them from making certain purchases or shopping with certain retailers.
- Disrupted pricing strategies for retailers. Retailers will likely start rounding cash transactions to the nearest nickel, which will affect pricing strategies and possibly have inflationary effects. (So long to the traditional .99 pricing strategy.) Eventually, the nickel — which costs nearly 14 cents per coin to manufacture — will become the new penny.
- CFI adjustments serving cash-based businesses. It may fall on CFIs to educate customers about how the change could affect them. Business customers who deal in cash may request more nickels than usual, as they will become the lowest coin denomination. Businesses might even see minimal cash flow changes, if they adjust their pricing strategy to eliminate pennies.
- CFI coin inventory changes. With pennies no longer being minted, rolls of pennies will eventually disappear from branches. However, financial institutions can still accept pennies, which will be melted and recycled once they’re sent back to the Treasury. Customers may request pennies to be counted and deposited into their accounts. Be prepared to increase your inventory of nickels for both businesses and consumers eager to spend pennies before they lose value.
Full Implications Are UnclearWhile many economists and bankers believe the impact of the penny’s phaseout will be negligible, it’s impossible to predict what the full effects will be. For example, there could be broader implications for the economy and the banking sector than are currently anticipated.Now is the time for CFIs to start preparing for the eventual transition away from the penny. Talk to your operations, communications, and marketing teams about how you can get ready for the switch.
