The Penny Dilemma and the Burden of Paying Cash

Following the announcement by the US Treasury that it has begun the process of phasing out production of the one cent (penny) coin, the Federal Reserve Bank of Atlanta published an article on its Policy Hub: Macroblog on the topic ¹.

Rather than focusing on the cost of producing the penny, the article analysed the so-called ‘burden of paying cash,’ related to what economists term ‘optimal currency and coin denominations’.

This article, which was also published in sister newsletter Coin & Mint News™, is a summary of that article.

Principle of least effort

Senior policy adviser and economist in the Atlanta Fed’s Research Department, Oz Shy, notes that cash payments are two-way exchanges of currency notes and coins. The payer (consumer, buyer) hands in currency notes and coins. Then, if needed, the payer receives change from the payee (merchant, seller) in the form of currency notes and coins.