Clare Duffy is a CNN Business associate writer covering the business of technology and the strategies of Big Tech companies. The opinions expressed in this commentary are her own.
A penny for your thoughts — or a nickel, dime or quarter, for that matter — may be harder to come by these days because of a nationwide shortage of coins.
During the pandemic, more consumers are staying home, shopping online and avoiding the use of physical currency, so coins have piled up in jars or under couch cushions rather than in banks and cash registers like normal. The US Mint also had to slow coin production because of employee safety measures, though the Mint told CNN Business it resumed full production capacity in mid-June.
That could make this the perfect time to finally get rid of the near-worthless American penny (sorry, Abe).
“Three months into the lockdown, I realized that the paper money and coins I had in my pocket were the same paper coins and money I’d had in my pocket three months before. I just wasn’t using them,” said Henry Aaron, Bruce and Virginia MacLaury Chair senior fellow in economic studies at the Brookings Institution. “In that environment, the disruption that would be caused by buying back outstanding coins would be zilch.”
Pennies (and nickels) are expensive
For 16 years and counting, it has cost the Mint more to make and ship pennies than they’re actually worth because of the rising cost of metals.
In 2019, it cost 1.99 cents to make each penny, leading to a loss of more than $72 million on the 7.3 billion pennies shipped during the year, according to the Mint’s annual report. (The same is true of nickels, too, which cost more than 7 cents to make.)
Those losses have ignited a long-simmering debate about whether the United States should continue to bother minting them.
Because pennies aren’t worth much — one researcher found they’re worth less than the time it takes to fumble around your purse or pick one up off the street — they are exchanged less frequently, and they exit the money supply faster than other coins. That means the Mint must produce more of them to keep up with that loss. Last year, pennies made up more than half of the total number of coins the Mint shipped out.
So, if the United States ditched the humble one-cent coin, it should have a lot more time and money on its hands to make other, more valuable coins.
“It would certainly help (the Mint) meet their targets.” Aaron said. “For the rest of the economy, the impact would be de minimis. But that’s an argument for doing it. Since we’re spending money pointlessly, why not save a little where we can?”
Why it’s hard to get rid of pennies
To be sure, it could be tricky for the idea to gain traction at a time when the pandemic is disrupting so many other areas of life and when lawmakers have a lot on their plates.
Critics say eliminating pennies would be a burden for businesses, which would have to adjust their pricing policies. That argument could be strengthened during the pandemic, when companies are already having to rapidly adjust their operations in order to remain open and profitable.
But in countries that have gotten rid of their pennies, including Canada, many businesses simply round their prices up or down to the nearest nickel at the register, a practice that’s likely less complicated than others companies have had to implement over the past few months.
“Compared to the rest of what they’re undergoing these days, it’s minimal, I think,” Aaron said. “We’re not talking rocket science.”
Some fear rounding prices could harm low-income consumers, who are more likely to use cash and have been disproportionately hurt by the pandemic. But experts say the effects would even out; some prices would round up and others would round down.
Businesses could benefit
The coin shortage is causing problems for banks and for retailers, who have had to ask customers to pay with exact change. And the Federal Reserve convened what it’s calling the “US Coin Task Force” to address the problem.
For that reason, the proposal to ditch the penny could be a win for businesses. Getting rid of the penny could save some serious time for store clerks and consumers, according to Jeff Lenard, vice president of strategic industry initiatives at the National Association of Convenience Stores. He said about 52 million cash transactions occur at convenience stores every day.
“If we save every one of these customers 2 seconds, that’s 104 million seconds or 1,203 days,” Lenard said. “And that doesn’t factor in time compounding — saving 2 seconds for the other people waiting in line before they get to pay. That’s some serious productivity.”
And on top of saving time, “it could minimize contact with coins that are less in favor as consumers seek out contactless payments or at least payments by plastic” during the pandemic, Lenard said.