Consumers could get shortchanged by a new U.S. policy to stop making pennies by early next year.
While the U.S. Treasury would save tens of millions of dollars by eliminating the 233-year-old 1-cent coin, an unintended consequence would be higher prices pushed to millions of poor consumers.
Bill Maurer, dean of the School of Social Sciences at UC Irvine, says removing the penny will harm those who don’t use bank cards or digital money options.
He pointed to two congressional proposals that he says ignore the gap between the rich and poor — the “Common Cents Act,” which was introduced by a bipartisan group of lawmakers that includes U.S. Rep. Robert Garcia, a Democrat from Long Beach, and the “Make Sense Not Cents Act.”
Both proposals would halt penny production within a year of enactment. And while the penny would remain legal tender, businesses would round cash transactions to the nearest nickel under either of the new laws — a key concern for Maurer and others.
For debit or credit card users, charges stay exact. But for unbanked and underbanked customers, cash transactions rounded to the nearest five cents mean potential losses, Maurer said.
“Canada and Australia eliminated low-denomination coins, and retailers rounded up. That affected only cash users,” Maurer said. “You’re harming people who live in a cash economy.”
Hurting the poor
Rounding up doesn’t hurt those who have money, but over time it does hurt the poor, he said.
“Everyone needs to take a couple of steps back and do a comprehensive assessment of the payments landscape in this country,” Maurer said.
Garcia spokeswoman Sara Guerrero couldn’t be reached for comment regarding concerns raised by Maurer and others.
“The politics of this are messy. It’s not a terrible idea, but I wish they had thought it through more,” said Maurer, who also is director of UCI’s Institute for Money, Technology and Financial Inclusion. “People see this as a quick win — the penny costs about 4 cents to make — but they overlook the consequences. They forget a large share of our population is still underbanked, and lacks easy access to digital payments.”
He cited a Federal Deposit Insurance Corp. banking study in 2023 that found 14.2% (representing 19 million households) of the U.S. population was underbanked and 4.2% was unbanked (5.6 million households). The same study found that 13.3% of the population in California is underbanked, and 4.3% is unbanked.
In the past, Maurer studied how consumers in impoverished nations turn to technology like mobile apps and ATMs to handle money.
One of his colleagues, Jenny Fan, who manages UCI’s money institute, said the relevance of cash is rising again, especially for poor nations. At a conference Fan attended in Accra, Ghana, presenters and their studies supported the notion of keeping hard currency in poorer nations rather than replacing it with a digital payment system.
“People are starting to sound the alarm bells that hard currency shouldn’t be completely halted,” Fan said.
Concerns are growing as disasters such as electricity outages, earthquakes, hurricanes and wars threaten to disrupt access to digital money.
“Everything is super-connected. But what happens when the system goes down?” she asked.
While financial technology advancements have drastically transformed Africa’s payment system and relationships with money, paper and coin currency remain an enduring feature of its economy, she said.
Paulina Gonzalez-Brito, chief executive officer of the San Francisco-based nonprofit Rise Economy, said the marginalized Latino, Black and low-income communities rely on cash, which means they’ll be hurt by the rounding up once the penny disappears.
“Rounding up at the register for groceries and essentials impacts already strained budgets,” Gonzalez-Brito said.
She estimates that one in five Californians, or 7.9 million consumers, are unbanked and underbanked.
Unbanked vs. underbanked
The unbanked typically earn under $30,000 annually and lack access to a bank account, Gonzalez-Brito explained. Underbanked individuals or families have bank accounts but rely on alternative financial services such as money orders, check-cashing services and payday loans instead of traditional credit to manage their finances and purchases.
“It’s a significant portion of the population,” Gonzalez-Brito said. “It’s a vulnerable group. Those not in this situation don’t realize that every penny counts when you’re struggling.”
Her group supports a proposed state law that would create CalAccount — a zero-fee, no-minimum bank account for unbanked and underbanked Californians — administered through the state Treasurer’s Office in partnership with a financial institution and possibly big retailers like a 7-Eleven convenience stores or CVS pharmacies.
“President Trump isn’t prioritizing the needs of people who are living on the edge. His concerns are not those who are struggling to make ends meet. He’s pushing tax cuts for the rich,” Gonzalez-Brito said.
Also see: Stop making cents: US Mint moves forward with plans to kill the penny
Penny pinchers
Removing the penny from circulation has been tried unsuccessfully several times.
For example, Arizona Rep. Jim Hayes in 1989 proposed the Price Rounding Act. The following year, his colleague, Arizona Rep. Jim Kolbe introduced the Legal Tender Modernization Act and the Currency Overhaul for an Industrious Nation Act, to stop penny production. In 2017, Sens. John McCain of Arizona and John Enzi of Wyoming attempted to pause the penny’s production for 10 years.
In 2013, then-President Barack Obama tried to retire the penny.
The latest attempt to get rid of the coin is growing more favorable as its production cost rises. The U.S. Mint lost $85.3 million in the fiscal year ending Sept. 30, 2024, when it produced nearly 3.2 billion pennies.
On May 22, the U.S. Treasury announced it would begin phasing out the penny in early 2026. The penny, which dates from the early days of the U.S. Mint after its establishment in 1792, costs roughly 3.7 cents to produce.
Mark Weller, executive director of Americans for Common Cents, has argued that eliminating the penny would lead to retailers rounding up prices, not down.
His Washington, D.C.-based trade group is partially funded by Jarden Zinc Products, the company that sells zinc coin blanks to the U.S. Mint.
While the administration argues it could save millions by getting rid of the penny, Weller said the government would actually end up spending $200 million for the additional nickels needed from rounding up.
“The nickel costs almost 14 cents to make, so we’d lose nine cents a nickel. It’s hard to explain to people how you’re going to save money without the penny if you’re making 14-cent nickels,” he said. “Wait until the summer, when we start running out of pennies — far earlier than what the administration says. You’ll start seeing Walmart and others just start rounding up. It’s going to be a rocky road.”