Don’t overreact to the cost of producing pennies, the business of minting coins is still quite profitable
Vox Media has an interesting YouTube video floating around on Facebook about pennies (see below). If you haven’t seen it, you have probably heard a take on the theme: pennies are useless and cost the government more money to make them than they are worth ($0.0107 per penny). While this is true, one might be misled into believing that the government is somehow losing millions of dollars from the manufacturing of the currency, but it’s not when you factor in the rest of coins and bills the U.S. produces into the equation.
In monetary economics, there is a concept called “seigniorage”; which dates back to the Middle Ages from Old French seigneuriage “right of the lord (seigneur) to mint money”. Seigniorage is generally defined as the net revenue or profit, if you will, from the face value of the coinage or token minted minus the cost of production and maintenance. For example, the cost of producing a dollar bill is a couple cents (say $0.05), so the rest of the value generated by producing a dollar bill ($0.95) counts as revenue to the treasury. So even though it costs $0.0107 to make a penny, the treasury is not losing money when you factor in the combined seigniorage revenue from all the coins and bills produced into circulation; it’s still a huge positive net revenue. In 2016, in fact, the U.S. Mint reported seigniorage net income of $668.5 million before protection costs.
So while it’s true that pennies cost, and maybe they are useless, it’s not really a big deal to keep them either. By getting rid of them, it would simply increase the net revenue to the treasury. Personally, I would be fine with getting rid of them, and it would not be an issue as many countries have already done it such as Canada and Australia. But let’s not overreact to the cost of producing them when you consider how much seigniorage revenue is still gained from producing $5, $10 bills, $20 bills, etc.
Aaron Medlin is a PhD student at the University of Massachusetts Amherst studying macroeconomics of private debt, monetary economics, international finance, and comparative economic systems.