The Federal Reserve Bank of Richmond published an economic analysis estimating that the 'rounding tax' from penny elimination could cost U.S. consumers approximately $6 million annually. The study also found that eliminating the nickel in addition to the penny could result in significantly higher costs of up to $56 million per year.
The Federal Reserve Bank of Richmond published Economic Brief No. 25-27, analyzing the consumer impact of phasing out the penny.
Key Findings
Using data from the 2023 Diary of Consumer Payment Choice, researchers estimated:
- The "rounding tax" from penny elimination could cost U.S. consumers approximately $6 million annually
- Eliminating the nickel in addition to the penny could result in significantly higher rounding costs: up to $56 million per year
Production Cost Context
According to the U.S. Mint's 2024 Annual Report:
- Producing and distributing a single penny costs 3.69 cents—nearly four times its face value
- The Treasury incurred a seigniorage loss of $85.3 million last year from minting more than 3 billion new pennies
- These mounting losses sparked re-evaluation of the penny's role in an increasingly digital economy
The Rounding Tax Explained
Without the penny, businesses need to round cash transactions to the nearest 5 cents, potentially increasing the cost of a given consumption basket for U.S. consumers. However, the researchers note that while production costs exceed face value, the social benefits of pricing flexibility must be weighed against production costs.
Methodology
The analysis used the latest data from the Diary of Consumer Payment Choice (DCPC) to quantify rounding costs across different consumer payment patterns and transaction types.
Policy Implications
The research provides important context for policymakers considering the broader implications of currency reform, suggesting that while the penny's elimination saves production costs, there are measurable (though relatively modest) costs to consumers from rounding.