Earlier this year, President Trump ordered the Treasury to end the production of the penny, arguing that the coins cost more to produce than their value and waste taxpayer money. The last batch of pennies were produced by U.S. Mint this summer, and businesses started seeing penny shortages this fall.
In response, the Treasury released a penny production cessation FAQs list with recommendations last week. One, for example, recommended merchants round transactions either up or down to the nearest five cents as pennies fall out of circulation.
While the federal government has stopped manufacturing new pennies, the Federal Reserve will continue to recirculate the roughly 114 billion pennies currently in existence for as long as possible. The Treasury said, “how long existing pennies remain in circulation depends largely on consumer behavior.”
The Treasury Department encouraged the public to spend their on-hand pennies to support a smooth transition and allow retailers and point-of-sale system providers time to adapt.
The full FAQ guidance can be seen here.
While issuance of the FAQ is a welcome step, it does not remove or address the legal risks for retailers when they round the amounts of cash transactions or change to compensate for the lack of pennies. Legislation is still needed in order to provide retailers with a legal safe harbor when they round these amounts as described in the FAQs.
Also last week, House Committee on Financial Services Chairman French Hill (R-AR) sent a letter to Federal Reserve Chairman Jerome Powell asking the Fed to take a thoughtful approach to its role in recirculating existing pennies.
In the letter, Hill and Republican members of the Committee expressed support for the administration’s decision to halt penny production due to its high cost to taxpayers, while emphasizing the need for clear legislative guidance to ensure fair and consistent cash practices. They highlighted the bipartisan Common Cents Act as the best way to provide certainty for retailers, banks and consumers and to preserve the viability of cash transactions.
The letter stated:
“Given current supply and demand dynamics, the Federal Reserve’s actions have significantly, and perhaps unnecessarily, impeded the circulation of pennies. Although the Mint will no longer produce additional one-cent pieces for circulation, estimates indicate that the nearly 300 billion pennies already in circulation are more than sufficient to facilitate commerce. We urge the Federal Reserve to proceed cautiously before shutting down additional terminals and to assess whether reopening more locations to penny deposits and orders would help recirculate existing coins and alleviate current pressures in the system.
Currently, the lack of penny availability is imposing inconvenience to our families and significant costs on retailers and financial institutions. We are particularly concerned that the prohibition on penny deposits at most coin terminal locations is unnecessarily preventing pennies from re-entering circulation. Allowing more penny deposits would increase the Federal Reserve’s supply and help maintain normal coin circulation nationwide.”
NACS has been strongly advocating for federal legislation that would allow retailers to round up or down to the nearest nickel and provide a safe harbor for retailers who round. NACS previously met with Treasury officials and sent a letter to the Senate Banking and House Financial Services Committees urging them to pass federal legislation to allow businesses to continue carrying out cash transactions as issues arise.
NACS will continue to monitor the situation. Look for more updates as they become available.
