Are American Businesses Running Out of Pennies?

The recent cessation of penny production by the US Mint has led to significant operational challenges for businesses, particularly in cash transactions. As a result of this shortage, many stores are now rounding sales down to the nearest five cents, creating financial implications for both retailers and consumers. This situation around the penny shortage highlights the growing tension between cash-based transactions and the evolving landscape of currency use.

Last updated: 10 October 2023 (BST)

What’s happening now

The abrupt end to penny minting in May 2023, announced by the Trump administration, has left US businesses grappling with a shortage of one-cent coins. The National Retail Federation has raised concerns about the issue, stating that businesses are facing significant challenges, particularly those that rely heavily on cash transactions. As pennies become scarce in circulation, many retailers are opting to round cash transactions to the nearest nickel, thereby impacting their margins and customer experience.

Key takeaways

The US Mint ceased penny production in May 2023, leading to immediate shortages.
Many retailers are rounding cash transactions to the nearest five cents due to a lack of pennies.
This rounding practice may lead to losses for businesses and complicate cash transactions for consumers.

Timeline: how we got here

Here’s a brief timeline of events leading to the current penny shortage:

February 2023: President Trump publicly denounces penny production as wasteful.
May 2023: The US Mint officially stops minting new pennies.
August-September 2023: Businesses begin reporting difficulties in obtaining pennies, leading to the adoption of rounding practices.

What’s new vs what’s known

New today/this week

Many retailers now openly discuss the financial impact of rounding sales due to the penny shortage. Companies like Kwik Trip have projected losses of up to $3 million (£2.3 million), signalling a widespread concern in the retail sector. The National Retail Federation is advocating for clearer federal guidance on how to manage cash transactions during this crisis.

What was already established

The cessation of penny production was initially framed as a cost-saving measure. However, the immediate consequences of this decision—such as the rising number of cash transactions requiring exact change—were not fully anticipated. Historically, other coins have been discontinued, but none have been as ubiquitous as the penny, which has been in circulation since 1793.

Impact for the UK

Consumers and households

While the penny shortage is a uniquely American issue, it raises questions about the future of cash transactions in a growing digital economy. UK consumers may wonder about the potential for similar scenarios, especially as contactless payments become more prevalent.

Businesses and jobs

The implications for businesses are significant. Retailers may experience reduced cash sales as customers are encouraged to pay with cards or mobile payments. This shift could lead to cost-cutting measures, including staffing reductions, especially in cash-heavy environments like convenience stores.

Policy and regulation

The situation calls for regulatory oversight. In the UK, as well as in the US, there may be a need for policies to support businesses in managing cash transactions effectively, particularly for lower-income customers who rely on cash payments.

Numbers that matter

4 cents: The estimated loss per cash transaction for retailers rounding down due to the penny shortage.
£2.3 million: Projected loss for Kwik Trip due to rounding practices.
3 million: The number of pennies previously minted per day by the US Mint before the cessation.
1793: The year the penny was first introduced into US circulation.
14 cents: The cost of producing a nickel, which may lead to further financial implications for the US Mint.

Definitions and jargon buster

US Mint: The bureau of the Department of the Treasury responsible for producing coinage for the United States.
Cash transactions: Payments made using physical currency rather than digital methods.
Rounding practices: The method of adjusting sale prices to eliminate the need for pennies in cash transactions.

How to think about the next steps

Near term (0–4 weeks)

Businesses should begin adopting clear policies on how to handle cash transactions. This may include training staff on rounding practices and communicating these changes to customers.

Medium term (1–6 months)

Retailers may need to explore alternative payment methods to mitigate losses from rounding. This could involve incentivising card payments or implementing loyalty programs for cash transactions.

Signals to watch

Federal guidance on cash transaction policies.
Trends in consumer payment preferences shifting from cash to digital methods.
Changes in the production costs of other coins, such as nickels and dimes.

Practical guidance

Do

Communicate clearly with customers about cash handling policies.
Consider implementing digital payment options to ease the transition.
Monitor transactions closely for financial impacts.

Don’t

Ignore customer feedback regarding payment policies.
Assume that the penny shortage will resolve itself without intervention.
Make abrupt changes without preparing staff for new practices.

Checklist

Review cash handling procedures with staff.
Inform customers about new rounding policies.
Evaluate payment options available to your customers.
Stay updated on federal guidelines regarding cash transactions.

Risks, caveats, and uncertainties

While the current situation reflects immediate operational impacts, the long-term effects of discontinuing the penny remain uncertain. There is a risk that continued cash shortages could lead to broader financial implications for low-income households that depend on cash payments. Furthermore, the lack of federal guidance leaves businesses in a state of ambiguity regarding best practices for handling cash transactions in the future.

Bottom line

The end of penny production marks a significant shift in the financial landscape for US businesses and consumers. The immediate need for clarity on cash transactions and the potential impact on low-income individuals highlight the complexities of currency management in today's economy. Retailers and policymakers must work collaboratively to navigate these challenges effectively.

FAQs

What should businesses do about the penny shortage?

Businesses should adopt clear policies for rounding cash transactions and explore alternative payment methods to mitigate losses associated with the penny shortage.

How is the penny shortage affecting consumers?

Consumers may face challenges in cash transactions as retailers round prices to the nearest nickel, potentially resulting in increased costs for cash payments.

Will the US Mint resume penny production?

There are currently no indications that the US Mint will resume penny production, as the decision was made based on cost-effectiveness and resource management considerations.