After 232 years of continuous production, the United States Mint stopped producing one-cent coins this month, immediately triggering controversies and headaches for cash managers especially in the nation’s retail industry.
Citing unreasonable metal and production costs, President Donald Trump’s administration made the decision shortly after his second term began in January to stop making new one-cent coins. By May, the Treasury Department had a plan to phase out production.
It costs 3.7 cents for the government to mint a one-cent coin, informally known as the “penny.” Although it appears that no more will be minted, the coin will still be used. The government contends that plenty will remain in the cash economy to complete cash transactions that do not end in a zero or five.
“While circulating production has ceased, the penny remains legal tender,” the US Mint said in a statement coinciding with the 12th November final-strike ceremony. “There are an estimated 300 million pennies in circulation – far exceeding the amount needed for commerce.”
However, disruptions are already occurring at businesses which handle a lot of small cash transactions. Some retailers complain they cannot stock enough one-cent coins or are impacted by temporary distribution imbalances in their region.
“Due to the nationwide penny shortage, we kindly ask you to pay with exact change,” states a notice posted at the cash registers at a Stop & Shop supermarket in Staten Island, New York.
The National Association of Convenience Stores is asking for national legislation to address the confusion and cost and to rationalise the patchwork of state and local regulations that could create legal risks. At least four states and several large US cities have enacted laws to punish retailers who discriminate against people who prefer to pay cash, and those laws can be interpreted as prohibiting rounding that is in favour of the payee.
To complicate matters, if the change given to people paying cash must be rounded upward to the nearest five-cent increment, it is possible that customers using credit cards, payment apps, or SNAP accounts must be treated the same way.
The stores incur costs for updating their point-of-sale terminals and to train employees, the convenience store association explains. The cost of the rounding and the technical adjustments can grow to the millions of dollars for large companies.
Stewart’s Shops, a chain of 400 ice cream and convenience stores in the northeastern US, says “it makes ‘cents’ to give the customer a break” and will not round downward when making change, according to an announcement on the company’s website.
“Stewart’s response is simple. We round up for you,” the 17th November web post promises. “If a customer is owed one penny, Stewart’s will give the customer a nickel.”
In an interview with Treasury Today Group in August, Coinstar’s CEO Kevin McColly urged corporate treasurers and cash-management professionals to prepare for the penny phaseout. McColly agreed that enough one-cent coins will still be available in a macro sense, but distribution imbalances are sometimes possible as shipments among the Federal Reserve coin depots and local banks fail to move the cash to where it is needed at exactly the time it is needed.
McColly urged companies to confer with their banks and make sure they are working with the Federal Reserve to keep enough coin flowing.
“If I am the corporate treasurer … I would make sure I have line-of-sight about where the coin is and make sure the inventory is really clear, so I can forecast properly,” McColly suggested.
The Trump administration phased out production of the one-cent coin unilaterally, without formal congressional action. A bill called the Common Cents Act is under consideration in the House of Representatives. One provision would make it clear that U.S. retailers may round cash transactions to the nearest five-cent increment.
The federal government is also pondering alternatives for the five-cent “nickel,” which costs 13 cents to produce. One idea is to find a cheaper metal formulation.
