Gus Carlson is a U.S.-based columnist for The Globe and Mail.
If you are of a certain generation, you might remember this homespun advice from industrialist Andrew Carnegie about basic economics: Take care of the pennies and the pounds will take care of themselves.
Quaint by today’s standards, perhaps, but throughout cultural history the lowly penny has held a remarkably high profile. Think of the Billie Holiday standard Pennies from Heaven; or Sir Thomas More’s “a penny for your thoughts”; or Robert Burton’s caution about being “penny-wise, and pound foolish.”
But the modern economic reality of the little copper-coated zinc disc has overtaken its sentimental appeal.
After years of failed attempts by lawmakers to kill the penny in the U.S. – and while other countries, including Canada, have succeeded – President Donald Trump earlier this month directed the U.S. Treasury to stop minting pennies.
The impetus for doing what others couldn’t do is tied directly to Mr. Trump’s assault on wasteful government spending. Each penny costs about 3.7 cents to make – about 20 per cent higher than in 2023 because of higher materials costs, including zinc – but its value is a fraction of what it was. Last year, the U.S. Mint lost more than US$85-million making the coins.
Considering the U.S. federal government had a 2024 budget of nearly US$7-trillion, the savings realized from killing the penny may be largely symbolic.
But stopping the production of the penny is just a first step. If Mr. Trump wants to realize much more value in cutting back on coinage, he needs to go further and focus on nickels, which cost more than 13 cents apiece to produce.
To be sure, the rise of digital commerce and cryptocurrencies has put pressure on all types of physical cash, coins and bills alike. But in the case of the pennies, a significant contributing factor to their decline as practical currency is that most of the coins produced each year are not in circulation. The vast majority are sitting in jars on kitchen counters, behind sofa cushions or rattling around in sock drawers.
What happens is this: A consumer makes a purchase and is given change that includes pennies. But those pennies are rarely used to make another purchase, so the supply at the retail level is not replenished.
But retailers are expected to keep enough pennies on hand for cash transactions, so they find themselves in a shortfall position, and the demand is made on the U.S. Mint to make more.
The resulting endless loop of replenishment makes no sense – and is costly. That’s a key reason Canada, Australia, Sweden, Switzerland and Norway eliminated the penny some time ago.
Canada’s move was part of its 2012 Economic Action Plan. Australia and New Zealand eliminated the coins in the 1990s.
In making the decision, Canada’s then-finance minister Jim Flaherty called the penny “a nuisance,” and touted the annual savings of $11-million realized by halting its production.
But Canada didn’t stop there. A high-profile publicity campaign urged Canadians to return their unused pennies to their banks – and banks to take them – or donate them to charities.
While pennies were still valid currency, the government took the pressure off retailers to keep and account for pennies by implementing rounding practices for cash transactions. In those cases, the cost of a product would be rounded up or down to the nearest nickel, eliminating the need for pennies. In effect, the behavioural changes at the country’s cash registers drove the penny’s obsolescence.
While critics of Mr. Trump’s move against the penny say consumers don’t like rounding and retailers can’t be counted on to always round in a proper and transparent way, the experience in other countries that have killed the coin has been controversy-free for the most part.
In practice, the economic benefit of killing the coin has gone far beyond the cost savings of making them. It has taken complexity and cost out of the purchase equation. And no one, except the eternally sentimental, seems to notice – or care.
Old schoolers who may mourn the passing of the U.S. penny understand the obsolescence of things. Buggy whips, manual typewriters and gas streetlamps have all gone the way of the dodo.
And even the stodgiest comprehend the compelling financial argument for eliminating the penny. But for some it may be hard to get past the sentimental value of the loveable little disc. Somehow, “Bitcoin from Heaven” doesn’t have the same ring.