Inflation’s Impact: The Penny’s Plunge Into Irrelevance
1st March 2024
It’s no surprise to readers of this site that metals are often worth more than fiat currency. Gold, silver, and other precious metals are known for their value. But sometimes fiat currency can’t even compete with zinc.
The US penny, which is primarily made of zinc, costs roughly three cents to produce and is only worth one cent according to the federal government. This is the opposite of what has happened historically. Generally, governments produce currency that is worth far more than the cost of producing it. Imagine printing a one hundred dollar bill which costs far less than a hundred dollars in materials and printing costs. The profit from this is called seigniorage. With pennies, the US government is practicing reverse seigniorage.
This loss of money from producing pennies is one of the arguments for abolishing the US penny. There are other arguments against the penny such as the claim that it’s worth so little compared to the typical American wage that it makes no sense to denominate prices in pennies, would anyone argue that the United States needs a coin worth half a penny?