It’s refreshing to see my co-blogger, Scott Sumner, tackle the anxieties surrounding the cessation of penny production.
This prompted me to remember that I had yet to share my own insights on the penny’s impending extinction, an article I published at Hoover back in March. The piece titled “Thoughts for Your Penny?” appeared in Defining Ideas on March 13, 2025, and I must admit, the clever title was not my doing—kudos to my editor for that.
Here are some key takeaways:
The US government does quite well with seigniorage, which is the profit made from issuing currency. While this revenue stream has diminished in recent years, due to the rise of credit cards and cryptocurrencies, it remains significant.
The crown jewel of seigniorage is the $100 bill, where the cost of printing is a mere 9.4 cents. This means the government rakes in an impressive $99.90 every time it spends one. Even the $1 bill, which costs 3.2 cents to produce, yields a tidy profit of 97 cents.
However, when it comes to smaller denominations, the government loses money. According to the 2024 Annual Report from the US Mint, the cost of minting a penny is $0.03—three times its face value. The nickel fares no better at $0.11, which is over twice its worth. This is precisely why I argue for the abolition of the nickel as well. It isn’t until you arrive at the dime that any profit can be found, as it costs $0.045 to mint, making it cheaper to produce than a nickel.
This revelation was surprising at first glance, but it makes sense upon closer inspection. The nickel is larger than the dime, and while both coins share similar metal compositions—75% copper and 25% nickel for the nickel, and a copper core wrapped in cupronickel for the dime—the production costs differ. Historically, dimes were composed of 90% silver until the Coinage Act of 1965, which was a necessary adjustment given the rising costs of silver. I still keep a few of those silver dimes and quarters in a sock drawer, a nostalgic reminder of a time when coins were worth their weight in precious metals.
Moreover:
The most significant benefits of eliminating the penny outweigh those of the nickel, so let’s focus on how we might transition away from its production.
The good news is that a transition would be largely seamless for most transactions. With the prevalence of credit and debit cards, consider a purchase of $19.99 on your Visa card. The merchant would charge you exactly that amount—no pennies involved. If that was your only purchase for the month and you paid your card in full, you would settle your bill electronically or via check—again, no pennies needed.
So, the main adjustment would only affect cash-paying customers. How would this work in practice? Canada provides a useful case study. Under Conservative Prime Minister Stephen Harper, Canada ceased penny production in May 2012, with distribution stopping entirely by February 2013. Having visited my cottage in Canada every summer, I can attest that cash transactions have been smooth. If a bill came to $19.97, the cash register rounded down to $19.95. Conversely, a bill of $19.98 would round up to $20.00. Interestingly, while pennies remain legal tender in Canada, I’ve not encountered anyone using them in years. The days of the “Take a penny, leave a penny” dish are long gone.
For a more comprehensive exploration, read the full article.
