The End Of The Cent: How Ditching The Penny Will Change Retail And Wallets

Key Concepts

• Penny Elimination: The discontinuation of the minting of 1-cent coins in the US.
• Coinage Act of 1792: The foundational legislation establishing the US Mint and authorizing the production of gold, silver, and copper coins.
• Coin Composition: The historical and modern materials used to mint pennies, evolving from pure copper to a zinc core with copper plating.
• Cost of Production vs. Value: The economic reality where the cost to produce a penny exceeds its face value.
• Rounding: The proposed method for handling cash transactions after the penny's elimination, where totals are adjusted to the nearest 5 cents.
• Legal Tender: The status of currency that must be accepted for payment of debts.
• Supplemental Nutrition Assistance Program (SNAP): A federal program that provides food assistance, potentially impacted by rounding policies.
• DCPC (Data Collection on Consumer Payments): A Federal Reserve-sponsored survey tracking consumer payment data.

End of the Penny: Implications for Consumers

Background and Historical Context

On November 12th, 2025, the US officially began the process of retiring the penny. US Treasurer Brandon Beachch marked the occasion by sending the final batch of 1-cent coins to production. This event signifies the first time since 1857 that the US has retired a circulating coin. The penny's history in the US is extensive, dating back to the Coinage Act of 1792, which authorized the minting of various denominations. Initially, pennies were made of pure copper in 1793. By 1857, the composition changed to 88% copper and 12% nickel, making the coin smaller and cheaper to produce. Modern pennies, however, are composed of 97.5% zinc with a 2.5% copper plating.

Economic Rationale for Elimination

The decision to end penny production is driven by economic factors. The cost of producing a penny has surpassed its face value, with the mint losing approximately 3.69 cents per coin. This is attributed to rising metal prices and other manufacturing costs. Concurrently, the demand for physical small change has decreased as consumers increasingly opt for electronic payment methods like cards, clicks, and taps. Treasurer Beachch stated, "Each penny costs more to make than it's worth. Ending production saves taxpayers an estimated $56 million a year." Treasury Secretary Scott Besson formally ordered the Philadelphia and Denver mints to cease production following an directive from President Trump.

Impact on Cash Transactions and Rounding

The primary question arising from the penny's demise concerns how cash transactions will be handled at the point of sale. The proposed solution is rounding cash totals to the nearest 5 cents. Purchases ending in 03 or 04 cents would be rounded up, while those ending in 01 or 02 cents would be rounded down. This rounding would apply exclusively to cash transactions; card and digital payments will continue to be processed with exact cent amounts.

However, the implementation of rounding is complicated by existing state and local laws. At least 10 states and localities have laws designed to prevent disadvantages for cash customers compared to electronic payment users. These laws could potentially prohibit businesses from rounding cash transactions, creating a legal conflict. The National Association of Convenience Stores (NACS) has advocated for a national law to permit rounding, thereby preventing businesses from inadvertently breaking existing laws.

Potential Complications and Concerns

The differential rounding for cash versus credit purchases could lead to several issues:

• Confusion at the Register: Businesses may face confusion regarding sales tax calculations, as rounding could affect the final taxable amount.
• Litigation: The practice of rounding could potentially lead to legal challenges.
• Consumer Perception: Consumers might question the fairness of paying higher sales tax on cash purchases due to rounding.
• SNAP Program Violations: The NACS has also raised concerns that rounding for cash customers could violate the terms of the Supplemental Nutrition Assistance Program (SNAP).

International Precedent and Data

Canada retired its penny in 2012, and studies from that country suggest that rounding tends to even out over time. However, a study published by the Federal Reserve Bank of Richmond earlier this year presented mixed conclusions. Utilizing data from the 2023 DCPC (Data Collection on Consumer Payments), a Federal Reserve-sponsored survey that tracks real payments from a nationally representative sample of consumers, the study estimated that rounding cash transactions to the nearest 5 cents could cost US consumers approximately $6 million annually.

Legal Authority and Future Circulation

It remains unclear whether President Trump possessed the unilateral authority to eliminate the penny, as currency specifications are typically dictated by Congress. Despite the cessation of minting, the penny will not disappear overnight. An estimated 250 billion pennies are still in circulation, according to the American Bankers Association. As these coins remain legal tender, it will take several years for them to be completely phased out of use.

Conclusion

The elimination of the penny marks a significant shift in US currency, driven by economic inefficiencies and evolving consumer payment habits. While the intention is to simplify transactions and save taxpayer money, the transition presents challenges related to existing state laws, potential consumer confusion, and the impact on programs like SNAP. The long-term effects will depend on how businesses and consumers adapt to rounding practices and the eventual depletion of the vast number of pennies still in circulation.