Should the U.S. Eliminate the Penny?

Should the U.S. kill the penny?

The penny has been a part of American currency for hundreds of years, giving it significant historical value. Many people place stock in the penny’s historical context and resist the idea of discontinuing it.  

Additionally, the penny’s defenders fear its removal would change how companies price their merchandise due to the “rounding tax.” A one-cent coin makes prices ending in $0.99 typical. However, without the penny, sellers might round up to the nearest dollar instead. 

Compelling arguments also exist on the other side of the penny-elimination debate. Primarily, proponents of retiring the U.S. one-cent coin see it as a cost-savings move.

The penny’s value has changed over time. It currently has only a fraction of the purchasing power it did in the past. For example, in 1913, a penny was a little more valuable than a quarter is today. Now, a penny costs more to produce than it’s actually worth, causing the U.S. Mint to lose money on materials every year. 

How did Canada eliminate its one-cent coin?

While discontinuing the penny may face resistance in the U.S., Canada ceased production of its one-cent coin in 2013 and encouraged businesses and financial institutions to return their pennies to the Canadian Mint. 

Canada removed its one-cent coin from circulation for reasons similar to those cited by U.S. penny-elimination proponents. “The penny is a currency without any currency in Canada, and it costs us 1.5 cents to produce a penny,” said former Canadian Finance Minister Jim Flaherty, who presided over the decision.

While some nostalgic souls north of the U.S. border may have lamented the passing of the iconic twin-maple-leaf coin, Flaherty said that when the Canadian senate committee held hearings on axing the penny, no witnesses came forward to fight for its preservation.

Canada is far from the first penniless nation. New Zealand, Australia, the Netherlands, Norway and Finland are among those that have made a smooth transition to a penny-free economy.

How did penny removal affect pricing in Canada?

U.S. penny defenders cite concerns about retailers rounding up prices. Canada has demonstrated that the lack of a one-cent coin has indeed changed prices. But in Canada’s system, rounding applies only to cash transactions; it doesn’t affect electronic payment forms like credit and debit transactions. This means you won’t have to worry about rounding if you sell online.

Additionally, rounding rules aren’t hard and fast. Canadian retailers follow various rounding approaches:

• Some round down all transactions to the nearest nickel.
• Some round down all sales below five cents and round up all sales above five cents. 
• Some use the government’s more complicated penny-by-penny rules.

All choices are good in the eyes of the government. There are also no requirements that retailers change their cash registers. They can have their staff use “rounding rules in their head” as long as they are consistent in the approach.

Would eliminating the penny affect small businesses?

Eliminating pennies may affect small businesses differently depending on how the process is implemented. Many feel businesses would likely encounter reduced checkout times (a positive result) and price rounding (a more uncertain result).  

• Reduced checkout times: A widely cited 2006 study by Walgreens and the National Association of Convenience Stores found that pennies can add about 2.5 seconds to cash transactions. Although this information comes from 2006, the nature of cash transactions has not changed substantially since then, so this figure likely remains the same today. Additionally, the anti-penny advocacy group Citizens to Retire the U.S. Penny claims that the time pennies add to each transaction costs the U.S. $2 billion annually in lost revenue, with over 120 billion hours lost overall. 
• Price rounding: Another notable effect of penny elimination is price rounding. Without the penny, businesses couldn’t set their prices at one cent less than a whole dollar ($1.99, for example). A common practice in penny-free countries to adjust to this change is rounding prices to the nearest nickel (instead of $1.99, it would be $2). Some small business owners and consumers may feel nervous about how price changes would affect customer loyalty. However, experts say that rounding transactions’ effects on profits and expenses are negligible.

Is eliminating the penny worth it?

Both sides of the argument have presented sound reasoning to keep or kill the penny. In fact, since inflation has caused nickels and dimes to lose value, some penny-removing proponents are advocating for eliminating these coins as well. 

It’s difficult to say whether either side is making headway. It’s clear that discontinuing the penny has its benefits, but the one-cent coin seems here to stay for now.

While this argument has yet to be settled within the United States, the results of Canada’s decision can help inform the debate and prepare businesses if the one-cent copper coin is ever removed from circulation.

Ned Smith contributed to the reporting and writing in this article.