The discontinuation of the one-cent coin, or the penny, by the U.S. Mint, is creating a ripple effect in the American economy. Banks are finding it increasingly difficult to supply retailers with pennies as their circulation slows. The Federal Reserve’s decision to stop redistributing old pennies at coin terminals is exacerbating the problem. The lack of any new guidance from federal agencies on how banks and businesses should adapt to these changes has left many frustrated and uncertain.
The Unfolding Penny Crisis
According to data, of the 165 coin distribution terminals used by the Federal Reserve, 102 are neither supplying pennies nor accepting deposits of them. This has left banks in a quandary, unable to supply pennies to their customers, the retailers. In the words of Steve Kenneally, a senior vice president at the American Bankers Association, “The problem is just getting worse. Banks can’t get [pennies], and that means that they can’t supply them to their customers, the retailers, and that puts the retailers in a jam.”
The bulk minting of one-cent coins ended sometime between June and August. Since then, penny circulation has slowed significantly, creating complications for tasks like cashing checks and providing exact change to customers. The resultant confusion and disruption are spreading across the country, affecting more and more stores.
The Federal Reserve’s Role
The Federal Reserve has cut off penny service at many coin distribution terminals, which typically supply the coins to banks. The number of terminals not handling pennies has risen from 41 in early October to over 100 by late November, impacting major cities like New York, Chicago, St. Louis, Dallas, and San Francisco. Despite the unfolding situation, the Federal Reserve has not provided any comment or clear guidance, leaving banks and businesses in limbo.
A Penny Saved…
In a bid to end the “wasteful” production of one-cent coins, which cost 3.7 cents each to make, President Donald Trump called for the U.S. Treasury to stop minting pennies in February. As a result, the last order for blank pennies was placed in May. This move is expected to save taxpayers about $56 million per year. However, the absence of new pennies is causing unexpected challenges, as the current policy of the Federal Reserve is effectively blocking the circulation of the existing 300 billion pennies in the American economy.
The Costly Consequences
Many banks are now resorting to shipping truckloads of pennies across vast distances to the nearest terminal that will still accept them, bearing the shipping costs themselves. Additionally, the lack of pennies has forced banks and businesses to improvise when it comes to cashing checks and providing change, leading to potential legal complications, especially for retailers. The lack of clear federal guidance on handling cash transactions in a penny-free economy is a major concern, leaving businesses vulnerable to potential lawsuits.
As the penny crisis continues to unfold, the pleas from banks and businesses for clear federal guidance grow louder. The aim is to establish a consistent standard for cash transactions and to manage the transition in a way that is least disruptive for all stakeholders. How the federal government responds to these pleas will shape the future of the penny-less American economy.
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