WASHINGTON (dpa-AFX) - Phasing out the penny is set to involve some cost to U.S. consumers paying in cash as businesses are set to round transactions to the nearest nickel, new research from the Federal Reserve Bank of Richmond revealed on Wednesday.
The U.S. government is set to end the production of new pennies, which has become a loss-making process, early next year.
In 2024, the Treasury incurred an $85.3 million seigniorage loss, which is the difference between the face value of the small coin and the cost to produce it, from minting over three billion new pennies. According to the U.S. Mint, producing and distributing a single penny costs 3.69 cents, nearly four times its face value.
Based on the 2023 Diary of Consumer Payment Choice, economists at the Richmond Fed calculated that eliminating the penny and rounding to the nearest 5 cents is set to result in a 'rounding tax' that could cost about $6.06 million annually to U.S. consumers.
The DCPC is a Federal Reserve-sponsored survey that tracked real payments from a nationally representative sample of consumers over a three-day period between September 29 and November 2, 2023.
The Richmond Fed economists also explored the scenario of eliminating the nickel in addition to the penny. That move could raise rounding costs significantly to $56 million a year to American consumers, the study found.
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