We are pleased that co-blogger Scott Sumner has taken on one of the horrors of ending Penny production.
His posts made me realize I had neglected to post in an article about Penny’s End Mise, which I published in Hoover in March. The article is “Thoughts for your penny?” Definition of ideasMarch 13, 2025. No, I couldn’t come up with that great title. My editor did that.
Some highlights:
The US government is going to have a pretty penny (pun intended) in seigniorage. That’s not as much as before. Because more people use credit cards and cryptocurrencies to purchase goods and services. Still, that’s a fair amount.
The biggest profit from Seiigniorage is a $100 bill. Printing one costs the federal government 9.4 cents. So, if the Fed spends this $100, it will make a profit of $99.90. Not bad. Printing a $1 invoice costs 3.2 cents to the Fed. So even on a $1 bill, the Fed will still earn 97 cents.
But minting a small coin will lose money for the Fed. Among them 2024 Annual ReportUS mint reports the cost of producing each coin’s sect. The cost of producing the penny was $0.03. In other words, the cost of producing a penny was three times more than a penny. Interestingly, the Fed went into the water even with nickel, costing $0.11, more than twice that of nickel. That’s why the federal government should stop producing nickel. It’s not until you reach the dime that the federal government finds coins to make money. Interestingly, the cost of producing a $0.045 dime is lower than the cost of producing nickel.
It surprised me at first, but it’s not supposed to have. First, nickel is bigger than dimes. Secondly, nickel and dime are made up of roughly the same metal. Nickel is made up of 75% copper and 25% nickel. It is actually an alloy called capronickel. Interestingly, nickel is made from capro nickel, except during World War II, when the US government had been hoping for nickel for military use since 1866. The dime consists of a copper core within the outer layer of capronickel. The overall composition of the dime is 91.67% copper and 8.33% nickel. Unlike nickel, the composition of the dime has changed dramatically. Before the Monetary Act of 1965 removed silver from the dime, the dime was made up of 90% silver and 10% copper. I still hide a silver dime and a quarter in my sock drawer. It is clear why the Fed changed its DIME configuration. It is clear that silver prices rose and the pre-1965 method was a losing proposal.
and:
That’s what I’m focusing on here, as you’ll get a lot of profit from removing pennies rather than nickel. How do you migrate?
First, most transactions do not require actual migration. Most people use credit or debit cards to purchase items. For example, if you purchase an item with a visa card for $19.99, the merchant can charge $19.99. There’s no need to change your hands. Let’s say that it’s the only thing you bought that month and that you fully repay your credit card each month. Pay your credit card by transferring funds electronically from the bank or, as is now rare, by writing and sending a check. Again, no penny is needed.
So the only transition needed is for those paying cash. How does it work? You can ask Canada for guidance. Under conservative former Prime Minister Stephen Harper, Canada’s Royal Mint stopped producing penny in May 2012, and the Canadian government stopped distributing them in February 2013. Every summer I went to a Canadian cottage and paid cash several times it was seamless. For example, if the invoice went to $19.97, the cash register would be $19.95. However, if the bill was $19.98, the cash register was rounded up to $20.00. Interestingly, Penny is still fiat currency in Canada, but for the past decade I haven’t seen anyone using them. The days of small dishes labeling “take pennies and leave pennies” at retail counters are gone. There’s no need.
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