There has long been broad bipartisan agreement that the penny has outlived its usefulness. Yet multiple efforts by both Democrats and Republicans have died in committee, basically for lack of interest since the stakes are so low.
In February, President Donald Trump directed the U.S. Treasury to end the cycle of replacing coins that cost more than they are worth and disappear because no one wants them. Treasury will cease production once the existing supply of blank slugs is used up. The direct savings to the taxpayer will be miniscule, especially since demand for equally unprofitable nickels will increase. But the savings to the overall economy due to faster transaction procession and more efficient resource allocation are estimated at upwards of $1 billion per year, freeing up resources throughout the economy that will pay greater dividends.
The history of the ubiquitous coin harkens to the birth of the republic. In 1792, Congress passed the Coinage Act that established the U.S. Mint in Philadelphia. The mint’s first circulating coin was pure copper, larger than our current quarter and five times heavier than a modern penny. Officially called the “cent” or one cent piece (from Latin centum, “hundred”), the coin was popularly referred to as the penny, the common name for the ancient British coin used in the colonies. Penny derives from Old English “penig,” hence English pence and German pfennig, originally referring to any coin but eventually to one cent.
Rising materials costs led the mint to downsize the coin and alter its metal composition over time, including alloys of copper with nickel, zinc and tin. Today’s version is zinc coated with a thin layer of copper plating.
Early pennies bore representations of a stylized Lady Liberty, a flying eagle and an Indian head, as Americans reflexively opposed images of monarchs on their coinage. It was not until 1909 that the first president appeared: the profile of Abraham Lincoln engraved in honor of his 100th birthday, the same image that appears on modern pennies.
(READ MORE: See a penny, pick it up? In the future, probably not as often — and, some say, that matters)
The U.S. Mint was originally not just the official issuer of currency, but also a profit making operation for the treasury. For most of our history, the cost of minting a coin was less than its face value. The differential, called seigniorage, was once a significant source of funding the government. As material costs increased, this differential narrowed until 2006 when the penny’s cost exceeded its value. Today, a penny costs 3.7 cents and a nickel costs 13.9 cents to manufacture. All other U.S. coins are still marginally profitable, but since only 16% of all transactions are conducted with cash, seigniorage is no longer a meaningful source of income.
Penny production is a complex, highly precise procedure that begins with pure zinc about 1/16 of an inch thick. The metal is uncoiled and flattened, then plated with a thin layer of copper. These plated strips are fed into high-speed presses that stamp out slugs slightly larger in diameter than the finished coin. The slugs proceed through a machine that rolls the lip on the edge, a process known as upsetting. Then it moves on to a heat treating furnace to soften the metal, and a final washing restores the copper color. These processed blanks, called planchets, are shipped to the U.S. Mint facilities in Philadelphia and Denver for striking and distribution.
Fun fact: All new U.S. pennies begin their lives in Tennessee. When the mint moved to copper-plated zinc in 1981, it decided to outsource the blanks to a company that produced canning equipment, later known as the Ball Corp. (maker of the Mason jar). The coin division was ultimately spun off, reorganized and renamed Artazn with its sole facility in Greeneville, Tennessee. Artazn has produced over 300 billion penny planchets.
While the cent remains official U.S. tender until Congress decides otherwise, its circulation will ultimately dry up. So, what to do with those Mason jars of old pennies?
Many banks offer coin exchange services to customers. Some have automated counting machines, but others may require you to roll your own, and they may charge a fee. The familiar Coinstar kiosks at supermarkets are convenient but expensive, charging around 12% plus a transaction fee. However, the fees are waived if you accept payment in gift cards redeemable at many major restaurants and retailers.
Before dumping those coins into the hopper, you might even make an evening of examining them for potential collector value. Consult the Professional Coin Grading Service or another coin collector site to estimate the value of anything you think looks interesting.
Today, the one cent piece is more of a paean to Old Abe than a useful medium of exchange. The Federal Reserve estimates that nearly 2/3 of all pennies in circulation are stranded forever in cupholders, coffee cans and couch cushions. There are so many that it would take 15,000 semi trucks to haul them back to the mint, but we value them so little that we leave them in a tray at the convenience store.
Collectors may start buying up pennies to cull through, and most will eventually be recycled into other coins as they make their way home to the mint over time. But as a rule, it is not productive to continue making billions of something every year we value so little that we wouldn’t bother to pick it up off the street.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.