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How much is a penny worth? According to the U.S. mint, the one-cent coin costs nearly four cents to produce and distribute. That difference between the coin’s face value and production cost is what prompted President Donald Trump to direct the Treasury Department to cease production of pennies earlier this year.
While Americans might not give much thought to the nation’s smallest coin denomination — often dumping them into tip jars, losing them in couches or tossing them in wishing wells — retailers are now devoting significant time and resources to the development and implementation of policies surrounding cash transactions in a fast-approaching penny-less economy.
With a shortage of pennies currently spreading throughout the United States, here’s what retailers need to know.
In February, President Trump announced on social media that his administration was ceasing production of the penny as a cost-saving measure. The Treasury Department later confirmed in May that the U.S. Mint had placed its final order of penny blanks, and that pennies would no longer be produced once those blanks were stamped. That final run of pennies reportedly occurred a month or two later.
In August, the Federal Reserve suspended the first of its 165 coin distribution terminals for penny services. The number of suspended distribution sites has ballooned since, and retailers, banks and other businesses that rely on pennies have reported shortages in markets across the country.
Our neighbors to the north underwent a similar process when they eliminated the penny from the coinage system over a decade ago. The Canadian Royal Mint ceased distribution of the penny in 2012. While the coin remained legal tender, a concerted effort was made to remove pennies from circulation, encouraging consumers to redeem pennies at financial institutions or donating them to charity.
The Canadian government provided businesses and consumers with consistent guidance on the new rounding practices as part of the phase-out process. Cash transactions where pennies were not available were rounded to the nearest five-cent increment. Rounding was done on the final bill of sale following any tax and fee calculations. Non-cash payments were unchanged and continued to be settled to the cent.
The current penny shortage and lack of guidance from the federal government have left retailers and other cash-accepting businesses uncertain on how to handle cash transactions where pennies are unavailable.
NRF surveyed its membership on how they are responding to the growing shortage, and key findings revealed that retailers are taking a variety of actions to mitigate shortage issues and continue to serve cash-paying customers. Businesses are deploying efficient coin management strategies as it becomes more difficult to obtain pennies from banks and armored carrier services.
Preparations for point-of-sale system updates, employee training and consumer awareness efforts are also underway. Retailers that are already out of pennies at store locations are rounding cash transactions in the customer’s favor for the time being to avoid customer friction and potential litigation risks.
While responses to the penny shortage vary based on location, customer demographics and severity of inventory issues, retailers are aligned on one key point: the need for federal guidance.
As mentioned earlier, the Canadian government provided businesses and consumers with detailed information on how eliminating the penny would reshape cash transactions. Unfortunately, the federal government has yet to produce similar guidance following actions to cease penny production.
Although rounding to the nearest nickel is widely understood to be the simplest, most practical solution, various state and local laws and federal program requirements effectively prohibit rounding practices.
For example, some states and localities have cash acceptance laws that prohibit pricing variations for cash customers compared with those paying with other forms of tender. Under these laws, rounding cash transactions would be a violation as pricing for non-cash payments would remain unchanged.
Federal assistance programs, such as the Supplemental Nutrition Assistance Program, have similar equal treatment requirements. SNAP-authorized retailers would be in violation of the program’s requirements by rounding cash transactions and treating SNAP-beneficiaries differently by charging different prices. Other considerations around cash checking and sales tax implications also need to be addressed.
Retailers are particularly concerned about the risk of litigation and class action lawsuits associated with compliance to laws and regulations around rounding practices. Without preemptive federal guidance, retailers and other cash-accepting businesses are exposed to legal risks simply for implementing necessary practices in response to the nationwide penny shortage.
NRF continues to work with Congress and the administration to develop clear and consistent guidance that provides both businesses and consumers with the clarity and certainty that is sorely needed.
