NATIONAL — The American penny is officially history. After decades of debate, the U.S. Mint in Philadelphia pressed its last pennies, finally conceding to soaring production costs that far exceeded the coin’s face value.
While the penny remains legal tender, its elimination has already caused headaches for merchants, with banks and stores across the country reporting immediate shortages. However, industry analysts and advocates are now turning their attention to the next piece of change facing retirement: the nickel.
The penny became an untenable proposition for the government, costing nearly 5 cents to manufacture—a loss of 4 cents per coin. But the economic factors that drove the penny’s demise are even more severe for the nickel.
The U.S. Mint has been losing money on every penny and nickel produced since 2006. Currently, the nickel costs nearly 14 cents to make, resulting in a net loss of almost 9 cents per coin.
This dramatic cost disparity is tied to the price of metals. Nickels, despite their name, are primarily made of 75% copper and 25% nickel. In contrast, the penny is mostly zinc (97.5% zinc and 2.5% copper). Since late 2016, zinc prices have remained relatively stable, but the cost of copper and nickel has roughly doubled, placing severe pressure on nickel production budgets.
The Race for a Cheaper Nickel
The U.S. Mint, along with its supplier Artazn, has been studying ways to reduce the production cost of the nickel to less than 5 cents. Mark Weller, executive director of the pro-penny group Americans for Common Cents (primarily funded by Artazn), suggests a solution may be close.
“It just so happens that copper and nickel are two of the more expensive metals you could be using,” Weller said.
He believes getting nickel production costs down to nearly 5 cents could be completed within a year by introducing a “new” nickel that uses a different composition but looks identical to the current one.
Beyond production costs, the nickel—like the penny before it—is increasingly limited in its usefulness as Americans transition toward digital transactions.
Other countries have moved more quickly to phase out small denominations. New Zealand and Australia both eliminated the production of their nickel equivalents in the early 2000s, within 20 years of stopping the production of their smallest coins.
However, moving toward a coin-free economy presents economic challenges, particularly for lower-income consumers. Americans for Common Cents argues that eliminating cash benefits big banks and credit card companies, whose swipe fees are ultimately passed onto consumers.
Merchants are already struggling with the penny shortage, seeking confirmation from Congress on whether they are legally allowed to round cash purchases to the nearest 5 cents.
A study by the Federal Reserve Bank of Richmond found that eliminating nickels and rounding to the nearest 10 cents would impose a “$56 million rounding tax” on American consumers annually, significantly more than the $6 million cost associated with only eliminating the penny.
