Penny phase-out not adding up for businesses still reliant on cash

Editor’s note: “Behind the News” is the product of Sun staff assisted by the Sun’s AI lab, which includes a variety of tools such as Anthropic’s Claude, Perplexity AI, Google Gemini and ChatGPT.

 

President Donald Trump’s executive order halting penny production has triggered an urgent scramble across the retail sector. With the U.S. Mint no longer producing new pennies and armored car services stopping penny deliveries, businesses are racing to adapt to a cash system without the one-cent coin. The sudden phase-out has caught retailers off guard, forcing them to implement rapid operational changes as existing penny supplies dwindle faster than anticipated.

Retail and business impact

Fast-food chains, grocery stores and convenience outlets are being forced to adapt rapidly, posting notices of “exact change unavailable,” manually rounding transactions, and seeking operational solutions [6]. Burger King franchisees in Baltimore have been stockpiling pennies in bulk due to sudden shortages following the directive. Some locations have accumulated enough pennies to last for about two months, but with armored car services stopping penny deliveries, uncertainty and shortages have rapidly worsened [6].

Gary Andrzejewski, who manages several Burger King locations, expressed confusion about the situation, acknowledging nobody fully understands how the shortage will unfold. Customers are reacting negatively to the rounding of prices to the nearest nickel, as seen in a Burger King in Illinois where a meal priced at $2.23 was rounded to $2.25, surprising and frustrating some patrons [7].

Retailers across the board are struggling. Kroger and other supermarkets have put up signs warning customers about the lack of exact change. Convenience stores like Sheetz urge customers to round up payments to charity, while Kwik Trip rounds down transactions to minimize discontent [8, 9]. Banks face challenges with penny circulation, with many coin distribution centers stopping penny circulation and some reallocating coins between branches, which is costly because pennies are heavy and expensive to transport [8].

The National Retail Federation highlights widespread retailer frustration due to lack of clear federal guidance and legal ambiguities stemming from state laws requiring exact change [8]. This creates operational difficulties and risks about rounding prices without owners incurring fines or upset customers. The National Retail Federation anticipates more widespread rounding of cash transactions to the nearest nickel as supply dwindles, placing a small burden on merchant software and cashier training but ultimately not disrupting electronic/card sales, which remain precise to the cent [8].

Margin pressures

The penny phase-out is creating significant margin pressures for cash-focused businesses, especially those with high volumes of small cash transactions like convenience stores, fast-food outlets and retailers [10]. Small retailers generally operate with profit margins ranging from about 5% to 10%, though this varies by sector and efficiency [11].

With the penny no longer available for exact change, businesses must round cash transactions to the nearest nickel. This rounding often means either rounding prices down, which cuts revenue directly, or rounding up, which risks customer dissatisfaction and potential legal issues under some state laws. To avoid losses or fines, many businesses round down, absorbing a small margin hit on every cash transaction [8].

Economic analyses and reports from the Richmond Fed and retail experts estimate that rounding cash transactions can reduce retailers’ margins by approximately 0.5% to 1%, depending on the volume of cash sales and the typical composition of small-value transactions [12, 13]. For cash-heavy small retailers, such as convenience stores or fast-food outlets, margins could be affected more significantly because many transactions involve amounts ending in 1, 2, 3, 4, 6, 7, 8 or 9 cents [12].

Additionally, the cost of managing cash is rising rapidly. Armored carriers and banks have begun halting coin pickups, particularly pennies, forcing businesses to hold and manage heavier coin inventories themselves. The labor, security and reconciliation costs associated with cash handling can represent more than 5% of total cash intake for many companies, squeezing margins further [10].

Businesses also face challenges in updating point-of-sale and accounting systems to manage new rounding rules and ensure accurate tax reporting, adding operational expenses and complexity [13]. Fast-food chains are adjusting prices and payment systems proactively to manage customer expectations and operational risks but still face uncertainty during the transition [9, 13].

Nickels are up next

The Trump administration’s new Department of Government Efficiency also signaled that nickels could face elimination, as producing them is also more expensive than their value [5]. The nickel currently costs nearly 14 cents to produce, almost triple its face value, leading the U.S. Treasury to consider changing the metal composition to reduce costs rather than eliminate the coin outright [14].

Increased demand for nickels

Eliminating pennies will significantly increase demand for nickels, which would replace pennies in many small cash transactions that require rounding. Experts estimate that about 30-40% of the lost penny demand could shift to nickels, as transactions rounded up from amounts ending in 3, 4, 8 or 9 cents would favor a nickel rather than returning to a dime or higher coin [15]. This increased demand could lead the U.S. Mint to produce between 2 billion and 2.5 billion nickels annually, far more than the approximately 200 million nickels minted in recent years while pennies were still produced [15].

However, the surge in nickel production could negate the savings from halting penny production because the government will spend much more per nickel than per penny to mint the coins needed for everyday transactions [12, 15]. Experts estimate that removing both pennies and nickels could cost consumers roughly $55 million annually, far more than phasing out the penny alone [12].

Status of other coins

Regarding dimes, they are currently more cost-effective to produce relative to their face value, and there are no active plans to stop their production. The U.S. Mint’s focus is primarily on reducing the costs of the nickel by exploring alternative metal compositions before considering any phase-out [14]. In short, while the penny production halt does put the nickel under financial scrutiny, a nickel or dime phase-out is not imminent.

Consumer impact

Cash purchases might occasionally be rounded up or down, but most experts and industry leaders say that, overall, the shift will not affect pricing or inflation in any significant way — Canada, for example, saw minimal price effect after its transition [4]. With hundreds of billions of pennies still in the public’s possession, any “collector value” will accrue slowly, mainly for older or rare specimens. The huge overhang in supply means regular pennies are unlikely to increase much in value for many years [5].

Path forward

The penny phase-out indirectly accelerates the push toward digital payments, which have lower handling costs and no rounding issues [10]. While this shift may reduce cash-handling expenses in the long term, businesses must navigate a potentially costly and complicated interim period with tighter margins on cash transactions.

Why was penny production stopped?

Trump’s executive order halting penny production was driven by economic efficiency concerns. Producing the penny costs far more than its face value — over 3 cents per coin in recent years, resulting in annual taxpayer losses of around $179 million [1]. The administration described this as “wasteful spending” and directed the Treasury to phase out new production, aiming for improved government efficiency and cost savings.

Production and circulation statistics

In 2023 alone, the U.S. Mint produced over 4.5 billion pennies, accounting for about 40% of all coins struck for circulation that year [2, 3]. Currently, estimates suggest there are approximately 114 billion pennies in circulation across the U.S. [4].

Timeline for phase-out

Experts predict the phase-out’s impact will be gradual. The huge number of pennies in circulation means they will remain usable for years. Drawing on Canada’s experience, pennies can persist in retail and personal use even after official production stops, with predictions ranging from a decade to possibly 30 years before they become scarce in everyday transactions [5]. The U.S. Treasury and experts agree that retailers and banks will eventually run out of new rolls to distribute, but the coin will remain official tender as long as people bring them in [4].

 

Sources

[1] https://www.usnews.com/news/national-news/articles/2025-02-10/is-the-penny-going-away-trump-orders-halt-on-production

[2] https://cssh.northeastern.edu/is-the-penny-going-away-trump-orders-halt-on-production/

[3] https://www.usatoday.com/story/news/factcheck/2025/02/13/us-mint-pennies-minted-annually-fact-check/78475846007/

[4] https://6abc.com/post/what-happens-americas-114-billion-pennies-us-stops-making/16645655/

[5] https://www.usnews.com/news/national-news/articles/2025-05-23/treasury-department-to-pull-penny-production-after-trump-order

[6] https://nypost.com/2025/11/05/business/burger-kings-hoarding-pennies-as-us-phases-out-one-cent-coins/

[7] https://www.the-sun.com/money/15446956/burger-king-cash-payment-change-penny-eliminated/

[8] https://www.reuters.com/business/retail-consumer/us-retailers-left-short-changed-penny-production-ends-2025-11-01/

[9] https://www.wsj.com/business/burger-king-braces-for-the-demise-of-the-penny-967e00c5

[10] https://www.readycreditcorp.com/resources/blog/the-penny-is-disappearing-and-so-are-the-profits-of-handling-cash/

[11] https://www.investopedia.com/terms/g/gross_profit_margin.asp

[12] https://www.richmondfed.org/publications/research/economic_brief/2025/eb_25-27

[13] https://kaplancfo.com/eliminating-the-penny-business-impact-2026/

[14] https://www.numismaticnews.net/is-the-nickel-next-to-go

[15] https://www.investing.com/news/economy/eliminating-the-penny-would-likely-increase-demand-for-nickels-wolfe-3861674