The U.S. Treasury Department announced in May 2025 that it will halt penny production starting in early 2026, marking the end of over two centuries of America’s smallest denomination coin.
This historic decision comes in response to growing production costs and decreasing practical use of the penny. At 3.69 cents per penny in 2024, the U.S. Mint reported an annual loss of $85.3 million to taxpayers. With digital and cashless payments becoming dominant, the penny has increasingly lost its relevance in everyday commerce.
Key Takeaways
- Penny production will end in early 2026 when the U.S. Mint exhausts its final order of copper-plated zinc blanks, although existing pennies will remain legal tender indefinitely.
- Manufacturing costs significantly exceed face value, with each penny costing nearly four times its denomination, leading to multi-million-dollar taxpayer losses.
- Cash transactions will be rounded to the nearest nickel, possibly costing consumers around $6 million annually while electronic payments remain unaffected.
- Successful international examples include Canada, Australia, and New Zealand, which eliminated small-denomination coins without noticeable negative effects.
- The phase-out will occur gradually, as billions of pennies in circulation allow consumers and businesses time to adjust.
Economic Background
Penny production has been economically inefficient for decades. Since 2006, the cost of making the coin has exceeded its face value due to increases in raw materials, labor, and distribution. Meanwhile, penny usage continues to decline as consumers often stockpile or discard them.
According to Treasury Secretary Janet Yellen, the primary motivation for the change is economic efficiency. Government studies reveal a steady decline in cash transactions, while digital payments dominate retail spending. Pennies often end up unused in jars and drawers, no longer circulating in the economy.
Impact on Businesses
Cash-heavy businesses will be most affected, as they must adjust final sale amounts using a rounding system. Rounding will follow simple rules: amounts ending in 1-2 cents will round down to the nearest nickel, while those ending in 3-4 cents will round up. This creates a balance that does not systematically favor businesses or consumers over time.
Financial Institutions
Banks and credit unions expect reduced coin processing burdens and operational costs. Though smaller institutions may experience temporary adjustments, many welcome the improved efficiency and space traditionally used for coin sorting and storage.
Public and Collector Reactions
For coin collectors and numismatists, the decision marks a historic moment. The U.S. penny first emerged in 1793, with the Lincoln design becoming iconic since 1909. Final production runs of 2026-dated pennies are anticipated to be especially popular among collectors.
Digital Payments Unaffected
Card and digital wallet transactions will not be impacted. These systems already support exact pricing, including fractions of a cent if necessary. As such, most consumers using e-commerce and contactless payments won’t notice any changes.
Nonprofit Challenges
Charitable organizations that previously relied on penny drives must look toward future strategies. With fewer pennies in circulation, groups like the Salvation Army have already begun shifting fundraising efforts to higher-denomination coins and electronic platforms.
Manufacturing and Employment Considerations
Penny production facilities will either shut down or transition to different operations. While there will be a decline in zinc demand for penny blanks, the broader zinc industry is unlikely to be significantly affected due to its diverse applications. Direct employment impact at the U.S. Mint is expected to be minimal.
Inflation Concerns
Economic studies from countries like Canada and Australia indicate no measurable inflation following the removal of small coins. Competitive pricing and digitization have continued to curb retail overpricing and price rounding abuse.
Implementation Timeline
Retailers and state agencies have until early 2026 to prepare. Updates to point-of-sale systems, staff training, and customer education will ensure a smooth transition. Local governments must revise regulations on fees, parking meters, and tolls to align with the new reality of nickel-based minimum values.
Recommendations and Resources
- Consumers should begin familiarizing themselves with rounding practices to avoid confusion during cash transactions.
- Businesses are advised to update their pricing and cash registers to accommodate nickel rounding and inform customers clearly.
- Nonprofits can explore digital donation tools and shift from small-coin collection drives to alternatives that reflect current currency usage patterns.
Looking Ahead
Some experts suggest the nickel might face similar scrutiny in years ahead. While its production cost currently averages 8.52 cents, it still maintains economic viability. However, the situation could change depending on metal prices and shifting consumer behavior.
In eliminating the penny, the U.S. joins international peers in adapting to a new economic environment. This move balances financial responsibility with practicality, potentially saving taxpayers tens of millions annually while signaling a continued shift toward digital modernization and fiscal efficiency.
Treasury Announces End to Penny Production in 2026
The U.S. Treasury Department made a historic announcement in May 2025, declaring it would halt penny production starting in early 2026. This decision marks the end of an era for America’s smallest denomination coin, which has been part of the nation’s currency system for over two centuries.
I witnessed the Treasury’s strategic approach to this transition when they placed their final order for penny blanks in May 2025. These copper-plated zinc discs will sustain production through the remainder of 2025, but supplies are projected to run out by early 2026. Once these materials are depleted, the U.S. Mint will cease all penny manufacturing operations.
The Treasury’s decision doesn’t eliminate pennies from circulation entirely. Existing pennies will continue to function as legal tender, allowing Americans to use them for cash transactions indefinitely. Businesses and consumers can still accept, spend, and exchange pennies without any legal restrictions. The coins already in circulation will gradually disappear through natural wear, loss, and hoarding over time.
Congressional Authority and Political Support
Only Congress possesses the constitutional authority to completely eliminate a form of currency from the American monetary system. The Treasury’s production halt represents an administrative decision within their operational control, but full demonetization would require legislative action. This distinction explains why existing pennies retain their legal status despite the end of new production.
Political figures from both major parties have publicly endorsed the Treasury’s decision. This bipartisan support reflects years of economic analysis and public discourse about the penny’s declining utility in modern commerce. The broad political consensus suggests that concerns about the penny’s production costs and practical value transcend traditional party lines.
The announcement culminates decades of debate about penny production that began gaining momentum in the early 2000s. Multiple congressional bills proposing the penny’s elimination have been introduced over the years, though none successfully navigated the legislative process. Studies conducted by government agencies and independent economists consistently highlighted the growing gap between production costs and the coin’s actual value.
The phase-out process represents a compromise between immediate elimination and indefinite continuation. By ending production while maintaining legal tender status, the Treasury acknowledges both economic realities and practical concerns about disrupting cash-based commerce. This approach allows the penny to fade from circulation naturally rather than through mandated withdrawal.
Cash transactions will adapt gradually to the penny’s eventual scarcity. Many retailers have already implemented rounding policies for cash purchases, and electronic payment systems continue expanding across all sectors of the economy. The 2026 production halt accelerates these existing trends rather than creating entirely new challenges for consumers and businesses.
The U.S. Mint’s production capacity will shift toward other denominations and commemorative coins once penny manufacturing ends. This reallocation of resources could improve efficiency in producing nickels, dimes, quarters, and other coins that remain central to cash transactions. Mint facilities previously dedicated to penny production will require retooling for alternative uses.
Currency collectors and numismatists are already anticipating increased interest in pennies minted during the final production years. The 2025 and early 2026 pennies may eventually carry premium value as the last examples of their kind produced by the U.S. Mint. However, the Treasury’s announcement emphasizes that pennies will remain common currency for the foreseeable future rather than immediate collectibles.
The end of penny production represents more than just an administrative change—it signals America’s continued evolution toward a digital economy while respecting the practical needs of cash users. This carefully planned transition demonstrates how monetary policy can adapt to changing economic conditions without disrupting everyday commerce or eliminating consumer choice in payment methods.
How Much Money the Government Loses Making Pennies Every Year
The financial reality of penny production has become increasingly unsustainable for the U.S. Treasury. Manufacturing each penny cost 3.69 cents in 2024, creating a loss of nearly 2.7 cents per coin. This means taxpayers effectively lose money every time the government mints a new penny.
The Scale of Production Losses
The sheer volume of penny production magnifies these losses dramatically. Over 3.2 billion pennies rolled off the mint presses in 2024, representing 57.5% of all coin production that year. These billions of coins collectively generated a seigniorage loss of $85.3 million for the U.S. Treasury in 2024 alone.
The nickel faces similar challenges, though on a smaller scale. Each nickel costs 13.8 cents to produce in 2024, meaning the government loses 8.8 cents on every five-cent piece. While this creates additional losses, the penny remains the primary drain on resources due to its massive production volume.
Transportation and Logistics Costs
Beyond manufacturing expenses, pennies create substantial logistical burdens that further drain government resources. The low value and high bulk of pennies makes transportation particularly inefficient. In 2024, the government moved 8,888 short tons of pennies across the country, requiring significant resources for a currency denomination that many businesses and consumers actively avoid.
Banks and retailers spend considerable time and money counting, storing, and transporting these coins. Armored car services charge based on weight and volume, making penny shipments disproportionately expensive compared to their actual value. Financial institutions often struggle with penny storage, requiring specialized equipment and additional labor hours to process these coins effectively.
The counting process alone creates inefficiencies throughout the monetary system:
- Bank tellers spend extra time processing penny transactions
- Businesses invest in coin-sorting machines
- Additional labor and equipment are needed for handling bulk coinage
Cash registers require additional compartments for pennies, and many retail establishments have implemented rounding policies to avoid penny transactions altogether. This widespread avoidance demonstrates how the practical costs of handling pennies often exceed their nominal value in real-world applications.
The cumulative effect of these production and handling costs creates a significant annual burden on taxpayers. Each year, the government continues to lose millions of dollars maintaining a coin that costs nearly four times its face value to produce. These losses compound over time, representing a substantial misallocation of public resources that could be directed toward more productive uses.
Commercial banks report increased operational costs when processing penny-heavy transactions, often requiring additional staff time and specialized equipment. The weight and volume of pennies create storage challenges that force financial institutions to invest in:
- Larger vault spaces
- More frequent armored car pickups
Manufacturing 3.2 billion pennies required substantial raw materials, energy, and labor resources in 2024. Copper and zinc prices fluctuate, but the fundamental economics remain unchanged: producing pennies will likely continue generating losses regardless of minor material cost variations.
The $85.3 million loss in 2024 represents just one year of accumulated waste, with similar losses occurring annually for decades.
These ongoing financial drains highlight why many economists and policymakers advocate for eliminating the penny entirely. The mathematical reality shows that every penny produced costs taxpayers money, creating a paradox where the government literally loses money by making money.
What Cash Rounding Means for Your Wallet
I’ve noticed significant changes coming to everyday transactions with the end of penny production. Cash rounding will fundamentally alter how Americans handle small purchases, creating a new dynamic between buyers and merchants that extends beyond simple convenience.
The Mechanics of Cash Rounding Rules
Cash rounding follows specific mathematical principles designed to maintain fairness across transactions. When making cash purchases, the final total gets adjusted according to these established rules:
- If the final digit shows 3, 4, 8, or 9 cents, the amount rounds up to the nearest five cents
- If the final digit displays 1, 2, 6, or 7 cents, the amount rounds down to the nearest five cents
- If the total ends in 0 or 5 cents, no adjustment occurs
This systematic approach ensures predictable outcomes for both consumers and retailers during the transition period.
Electronic payment methods remain unaffected by these rounding requirements. Credit cards, debit cards, mobile payments, and digital transfers continue processing transactions down to the exact penny. This distinction creates a two-tier pricing system where payment method selection directly impacts final costs.
Based on 2023 consumer payment data from the Diary of Consumer Payment Choice (DCPC), rounding will cost American consumers approximately $6 million annually. This figure represents the cumulative effect of upward rounding across millions of daily cash transactions. While individual purchases see minimal impact, the aggregate effect becomes substantial when calculated across the entire economy.
The rounding cost functions as an inadvertent tax on cash users, particularly affecting demographics that rely heavily on physical currency. Lower-income households, elderly consumers, and those without access to electronic payment methods bear disproportionate burden from these additional costs.
Merchants face operational adjustments beyond simple price calculations. Staff training becomes essential to handle customer questions about rounding procedures. Point-of-sale systems require updates to accommodate automatic rounding functions. Cash register reconciliation processes must account for rounding differences at day’s end.
Strategic shopping behaviors will likely emerge as consumers adapt to rounding realities. Smart shoppers might time multiple small purchases to minimize rounding losses. Others may shift toward electronic payments for small transactions while maintaining cash use for larger purchases where rounding impact diminishes proportionally.
The potential expansion of rounding rules presents even more significant financial implications. If nickel production also ceased, forcing rounding to the nearest ten cents, annual consumer costs could escalate to approximately $56 million according to the same payment choice data. This dramatic increase highlights how small denominations carry outsized importance in daily commerce.
Small business owners particularly feel rounding pressure since many operate on thin profit margins. Coffee shops, convenience stores, and local retailers must balance customer satisfaction against the mathematical certainty of rounding requirements. Some establishments might adjust base prices to minimize customer rounding losses, while others may view rounding gains as minor revenue supplements.
Geographic variations in cash usage patterns mean rounding impact won’t distribute evenly across regions. Rural areas with higher cash transaction rates will experience greater cumulative effects than urban centers where electronic payments dominate. This disparity could influence local economic dynamics in unexpected ways.
Consumer education becomes critical during this transition period. Many Americans remain unaware of specific rounding rules or their long-term financial implications. Clear communication from retailers, banks, and government agencies helps minimize confusion and frustration at checkout counters.
The seigniorage loss from discontinued penny production affects government revenues, but consumer rounding costs represent a transfer from individual wallets to business cash registers rather than complete economic loss. This redistribution creates winners and losers in ways that weren’t anticipated when penny elimination discussions began.
Understanding these rounding mechanics empowers consumers to make informed decisions about payment methods and shopping strategies in this new economic environment.
Why the Penny Has Outlived Its Usefulness
The penny has become increasingly irrelevant in modern commerce, struggling to maintain any meaningful role in daily transactions. I’ve observed that pennies are systematically excluded from most automated payment systems, creating a fundamental disconnect between this coin and contemporary purchasing methods.
Limited Commercial Acceptance and Utility
Most vending machines, toll booths, and bulk retail operations refuse to accept pennies, effectively pushing this denomination out of practical circulation. The logistics challenges associated with penny handling have prompted businesses to abandon them entirely, recognizing that the operational costs exceed any perceived benefits.
Transportation companies find pennies particularly problematic for coin transport operations. These copper-plated zinc pieces create unnecessary weight and volume in cash management systems, forcing businesses to dedicate disproportionate resources to handling currency that customers rarely want to use. Parking meters, public transportation systems, and automated checkout stations have largely eliminated penny acceptance, further reducing their utility in everyday transactions.
Many pennies disappear from active circulation entirely, accumulating in jars, drawers, and forgotten corners of homes across America. This phenomenon removes millions of coins from the economy while the government continues producing replacements, creating an expensive cycle of manufacturing coins that serve no practical purpose.
Inflation Has Destroyed the Penny’s Value
Inflation has systematically eroded the penny’s purchasing power to meaningless levels, making it effectively worthless for any legitimate transaction. A 2025 nickel now possesses the same purchasing power that a penny held in 1978, illustrating how dramatically the coin’s value has diminished over recent decades.
The comparison becomes even more striking when examining the dime’s relative value. A 2025 dime equals the purchasing power of a 1967 penny, demonstrating that what once required a penny now demands ten times that amount. This inflation-driven devaluation means that pennies cannot purchase anything independently, rendering them obsolete in practical commerce.
Retailers increasingly round transactions to the nearest nickel, acknowledging that penny-level precision has become meaningless in modern pricing structures. Gas stations, grocery stores, and countless other businesses have adopted rounding policies that effectively eliminate the penny’s role in final transaction amounts. Electronic payment methods have accelerated this trend, as digital transactions naturally avoid the complications of physical penny exchange.
The manufacturing cost of pennies exceeds their face value, creating a situation where the government loses money on every coin produced. Each penny costs approximately 2.4 cents to manufacture, making them a drain on federal resources rather than a contributor to efficient commerce. This economic reality, combined with their diminished utility, makes continued penny production an expensive exercise in maintaining tradition rather than serving practical needs.
Cash-based transactions increasingly treat pennies as nuisances rather than legitimate currency. Store clerks often encourage customers to leave pennies in charitable donation containers, and many businesses maintain penny dishes for customers who want to rid themselves of accumulated coins. These practices demonstrate that pennies have transformed from functional currency into burdensome objects that people actively seek to discard.
The penny’s elimination from Canadian currency in 2013 provides a successful precedent for discontinuation without economic disruption. Canadian businesses adapted quickly to nickel-based rounding, and consumers experienced no significant inconvenience in daily transactions. Their experience proves that modern economies can function effectively without smallest-denomination coins, particularly when electronic payments dominate commercial activity.
Banking institutions spend considerable resources processing pennies that provide minimal economic value. Coin counting, storage, and distribution systems must accommodate billions of pennies annually, diverting attention and resources from more valuable banking operations. Credit unions and banks often charge fees for penny processing, reflecting the true cost of handling these low-value coins in large quantities.
Other Countries That Successfully Ditched Their Lowest Coins
Several nations have successfully eliminated their smallest denomination coins without causing economic disruption, providing valuable precedents for monetary policy changes. These international examples demonstrate that phasing out low-value coins can work effectively in modern economies.
International Examples of Successful Coin Elimination
Countries across the globe have made strategic decisions to discontinue their lowest-value coins when production costs exceeded their practical value:
- Australia discontinued its 1- and 2-cent coins in 1992, streamlining transactions while maintaining economic stability.
- New Zealand ended production of its 1- and 2-cent coins in 1990, followed by elimination of the 5-cent coin in 2006.
- Canada ceased penny production in 2012, becoming one of the most recent examples of successful small coin elimination.
- Finland stopped minting 1- and 2-cent euro coins, though they remain legal tender.
Canada’s penny elimination offers particularly relevant insights for understanding how this process works in practice. The Canadian government cited production costs that exceeded the coin’s face value as the primary reason for discontinuation. Canadian businesses adapted quickly to rounding practices, and consumer acceptance remained high throughout the transition period.
Australia’s experience with eliminating both 1- and 2-cent coins simultaneously proved that removing multiple denominations doesn’t create confusion or economic hardship. Australian retailers successfully implemented rounding rules, and the country’s economy continued functioning normally without these small denomination coins.
New Zealand took a gradual approach, first eliminating 1- and 2-cent coins before later removing the 5-cent coin. This phased elimination strategy allowed businesses and consumers time to adjust their practices incrementally, demonstrating that flexibility in implementation can enhance success rates.
Interestingly, the United States has historical precedent for coin elimination. The half-cent coin was discontinued in 1857 when its purchasing power had diminished significantly. At that time, the half-cent had roughly the same buying power that a nickel possesses today, showing that Americans have previously adapted to currency changes without major disruption.
These international examples reveal common patterns in successful coin elimination programs. Production costs consistently exceeded face value in each case, and public support generally increased once implementation began. Rounding practices became standard procedure, with most transactions rounded to the nearest 5-cent increment.
The transition periods in these countries typically lasted between six months and two years, allowing sufficient time for public education and business adaptation. Governments provided clear guidelines for rounding practices, ensuring consistency across different sectors and regions.
Cash transactions became more efficient in these countries after small coin elimination. Retail workers spent less time counting exact change, and consumers carried lighter wallets without accumulating large quantities of low-value coins. Electronic payment adoption accelerated in some regions, as digital transactions avoided rounding altogether.
Economic studies from these countries show minimal impact on inflation or pricing patterns following coin elimination. Businesses generally absorbed small rounding differences rather than systematically raising prices, and competitive market forces prevented widespread price manipulation.
The success stories from Australia, Canada, and New Zealand demonstrate that eliminating low-value coins represents a practical modernization rather than a fundamental economic shift. These countries maintained strong currencies and stable economies while reducing production costs and improving transaction efficiency.
Their experiences provide a roadmap for other nations considering similar changes, showing that careful planning, clear communication, and gradual implementation can overcome initial public resistance. The precedent exists for successful small coin elimination across different economic systems and cultural contexts.
The Gradual Transition Away From Pennies
I observe that this transition represents one of the most significant monetary changes in recent American history, yet it won’t happen overnight. The Treasury’s decision to end penny production doesn’t immediately invalidate existing pennies, which will continue to function as legal tender indefinitely. This means consumers can still use pennies for purchases and receive them as change, though their availability will naturally decline as coins leave circulation through normal use.
The Practical Reality of Phase-Out Implementation
The sheer volume of pennies already in circulation creates a buffer period that could extend for years. With billions of these copper-plated coins scattered across cash registers, piggy banks, and couch cushions nationwide, retailers won’t face immediate shortages. However, as pennies gradually disappear from active circulation, merchants will need to adapt their cash handling procedures.
Rounding strategies will become essential for businesses that primarily deal in cash transactions. Most retailers will likely adopt the Swedish rounding system, where final prices ending in 1, 2, 6, or 7 cents round down, while those ending in 3, 4, 8, or 9 cents round up. This approach maintains mathematical neutrality over multiple transactions, ensuring neither consumers nor merchants gain systematic advantages.
The economic research surrounding penny elimination reveals encouraging data about consumer impact. Studies examining similar transitions in other countries suggest the “rounding tax” effect remains minimal compared to the substantial Treasury savings achieved by halting production. Annual losses from penny manufacturing had reached unsustainable levels, with production costs exceeding the coin’s face value by significant margins.
Consumer behavior patterns indicate that most Americans already avoid using pennies when possible. Digital payment methods continue expanding rapidly, reducing reliance on physical currency across all demographics. This shift supports a smoother transition, as fewer transactions will require cash rounding in the first place.
Merchant strategy adaptations will vary significantly across different retail sectors:
- Grocery stores and restaurants handling numerous small transactions may need to update point-of-sale systems and train staff on rounding procedures.
- Gas stations, which already price fuel in tenths of cents, might experience minimal operational changes.
- Large retailers with sophisticated payment processing capabilities will likely transition more easily than smaller, cash-dependent businesses.
Policymakers are closely monitoring international examples of successful currency simplification. Canada’s penny elimination in 2013 provides valuable insights into consumer acceptance and economic outcomes. Their experience demonstrates that public resistance typically diminishes quickly once the practical benefits become apparent.
The policy reform implications extend beyond just pennies. Economic analysts are already discussing potential nickel elimination, as production costs for these coins also exceed their face value. Such discussions reflect a broader reevaluation of physical currency’s role in an increasingly digital economy.
Regional variations in cash usage patterns will influence how quickly different areas experience the transition effects:
- Urban centers with higher digital payment adoption rates may barely notice the change.
- Rural communities that rely more heavily on cash transactions might require additional adjustment time.
Cash decline trends support the long-term viability of this transition. Credit cards, debit cards, and mobile payment platforms continue gaining market share, reducing the overall demand for small-denomination coins. This technological shift creates favorable conditions for currency simplification without significant economic disruption.
The timing of this transition reflects careful consideration of multiple economic factors. Treasury officials have balanced the immediate costs of continued production against potential consumer inconvenience, concluding that the financial benefits justify proceeding with elimination.
Businesses should begin preparing for gradual implementation by reviewing their cash handling procedures and considering system updates that accommodate rounding requirements. Early preparation will ensure smooth transitions when penny supplies in their local markets begin declining noticeably.
Sources:
“Rounding Up: The Impact of Phasing Out the Penny,” Richmond Fed Economic Brief, July 2025 (Zhu Wang, Russell Wong)
“Penny debate in the United States,” Wikipedia, updated 2025
“Treasury Sounds Death Knell for Penny Production,” Oyin Adedoyin, May 22, 2025
