An abrupt halt in the production of the U.S. penny is creating significant disruptions for retailers and banks across the country. Following a decision earlier this year to cease minting the one-cent coin, businesses are now grappling with a severe shortage, forcing them to round down transactions and absorb financial losses as the holiday shopping season approaches.
The supply of new pennies officially ended in August, and the consequences are now rippling through the economy. Without federal guidance on how to manage the transition, merchants are left improvising solutions, from pleading with customers for exact change to implementing costly rounding policies to avoid legal challenges.
Key Takeaways
- The U.S. government stopped minting pennies earlier this year, citing high production costs.
- Retailers and banks are experiencing a nationwide shortage, making it difficult to provide exact change.
- Many businesses are rounding cash transactions down to the nearest nickel to avoid legal issues, resulting in millions of dollars in losses.
- The sudden transition has occurred without federal guidance, leaving the retail and banking industries calling for clarity.
An Unplanned Transition Creates Financial Strain
The decision to end the penny's production, announced on February 9, was framed as a cost-saving measure. For years, the U.S. Mint has spent more to produce the coin than its face value. According to its most recent annual report, it cost 3.7 cents to make a single penny in 2024.
While industry groups have long advocated for phasing out the coin, the sudden execution has left businesses unprepared. "We have been advocating abolition of the penny for 30 years. But this is not the way we wanted it to go," said Jeff Lenard with the National Association of Convenience Stores.
The lack of a transition period or clear rules has created a legal gray area. In several states, rounding up a customer's total is illegal, as it could be seen as discriminating against cash-paying customers. To avoid potential lawsuits, many retailers have opted to round down every cash transaction to the nearest five cents.
A Costly Problem
Midwest convenience store chain Kwik Trip reported that its policy of rounding down transactions is projected to cost the company approximately $3 million this year alone. This highlights the significant financial impact on businesses with high volumes of small cash purchases.
Retailers Scramble for Solutions
The shortage has become so acute that some businesses are resorting to unconventional methods to acquire pennies. The convenience store chain Sheetz briefly ran a promotion offering a free soda to any customer who brought in 100 pennies.
Other businesses are encouraging customers at checkout to donate their change to charity, simplifying transactions and reducing the need for one-cent coins. However, these are temporary fixes for a systemic problem.
"It’s a chunk of change," stated Dylan Jeon, senior director of government relations with the National Retail Federation, referring to the cumulative losses retailers are facing from rounding down transactions.
Banks and a Broken Supply Chain
The problem extends deep into the financial system, where banks are finding themselves unable to meet the demands of their commercial clients. The Federal Reserve, which manages coin distribution, curtailed penny shipments after the final batch was minted in June and distributed by August.
Troy Richards, president of Guaranty Bank & Trust Co. in Louisiana, described the sudden cutoff. "We got an email announcement from the Federal Reserve that penny shipments would be curtailed. Little did we know that those shipments were already over for us," he said. Richards noted that his bank's $1,800 supply of pennies was depleted in just two weeks.
Now, his branches are forced to ration their remaining pennies, reserving them for essential transactions like cashing checks to the exact amount.
The Penny's Circulation Problem
The U.S. Mint produced 3.23 billion pennies in 2024. Despite the high volume, pennies have a low circulation rate. Many are taken out of the economy and stored in jars or piggy banks, requiring the Mint to constantly produce more to meet demand. This one-way flow is a key reason why the shortage has been felt so quickly.
Logistical Hurdles Worsen the Shortage
Exacerbating the issue is a breakdown in the coin circulation infrastructure. The Federal Reserve utilizes a network of about 170 coin terminals, operated by armored carrier companies, where banks can deposit or withdraw coins. Currently, roughly a third of these terminals are no longer accepting penny deposits or fulfilling penny orders.
This logistical bottleneck prevents pennies from moving from areas with a potential surplus to regions experiencing severe shortages. A Federal Reserve spokeswoman confirmed that as penny inventory is depleted, the availability of coin distribution locations will vary.
A Call for Federal Guidance
Both the retail and banking industries, which often find themselves on opposite sides of policy debates, are united in their call for federal intervention. Their demand is not for the return of the penny but for a clear, standardized set of rules for navigating its absence.
A bill known as the Common Cents Act is currently pending in Congress. If passed, it would establish a national standard for rounding cash transactions to the nearest nickel, providing legal protection for businesses. This approach would mirror how other countries have managed similar currency transitions.
Lessons from Other Nations
The United States is not the first country to eliminate its lowest-denomination coin. However, its approach stands in stark contrast to others.
- Canada: Announced the elimination of its one-cent coin in 2012 and began a gradual phase-out in 2013. A decade later, it is still redeeming and recycling the coins.
- United Kingdom: The "decimalization" process to modernize its currency system was a multi-year effort that spanned much of the 1960s and early 1970s.
These examples highlight the importance of a planned, multi-year transition that gives businesses, banks, and consumers time to adapt. The U.S. approach, by contrast, has been abrupt and without regulatory support.
As the holiday season gets underway, the pressure on retailers will only intensify. Without action from Washington, the cost of the penny's demise will continue to be paid by businesses and, potentially, their customers.
"We don’t want the penny back," Lenard of the NACS emphasized. "We just want some sort of clarity from the federal government on what to do, as this issue is only going to get worse."
