The high costs from eliminating the penny would dwarf any proposed savings according to a new economic study. Titled “The Economics of Eliminating or Retaining the U.S. Penny,” the study found eliminating the penny would cost Americans a whopping $909 million to $1.93 billion per year. The study was funded by the coin cashing service Coinstar and written by Georgetown University Senior Policy Fellow Robert Shapiro.
Why such a significant US government cost if the penny is eliminated?
First, the Mint has said they would have to double nickel production to replace pennies. Nickels costs significantly more to make than their face value and Shapiro estimates up to $54 million in new government costs for nickels to replace the face value of pennies.
Second, the Mint would have to produce additional nickels, dimes and quarters to maintain current levels of coin recirculation. Coinstar found that when Canada eliminated the penny, the volume of Canadian nickels and dimes recirculated through these services fell off 35 percent. Without the penny, the Royal Canadian Mint had to mint more new coins at a higher cost per coin. The Shapiro study estimated another $334 million for the additional nickels, dimes and quarters needed to maintain current levels of coin recirculation, depending on metal prices.
According to Coinstar, coin supply comes from two primary sources – minted coins and recirculated coins from kiosks. Moreover, coins recirculated from kiosks represents 2.4 times more coins than government minted coins. Without pennies, it takes longer for coins to accumulate so fewer coins are recirculated. The US would have to mint more silver coins.
Shapiro also found an economic cost for the “rounding up of cash charges to the nearest nickel.” Rounding to the nickel is strongly opposed by Americans.
Shapiro said, “American consumers and businesses continue to prove the penny’s value as a medium of exchange by using it.”