The US Treasury recently announced that it started the process of phasing out production of the penny and will soon stop putting new one-cent coins into circulation, (These CNN 
and WSJ articles, dated May 22, 2025, discuss the announcement.) This decision should not come as a surprise considering the fact that, since the late 1980s, several bills have been submitted to Congress regarding the issue: H.R.3761 (1989), H.R.2528 (2001), H.R.5818 (2006), S.759 (2017), and H.R.1270 (2025). Whereas the media focused on the cost of producing a penny coin (3.69 cents in 2024) and a nickel coin (13.78 cents in 2024), this essay analyzes an equally important issue, which is related to what economists call the "optimal currency and coin denominations." Table 1 compares coin denominations among three similar economies.
Two remarks about table 1: First, although the 1-cent coin is still minted in the euro area, Belgium, Estonia, Finland, Ireland, Italy, Lithuania, the Netherlands, and Slovakia permit rounding of cash payments to the nearest 5 cents. Second, although the 1-dollar coin is in circulation in the United States, it is rarely used, probably because of its size and the weight relative to that of the 1-dollar paper bill, which is also in circulation.
The burden of paying cash: The principle of least effort
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. To determine the optimal denominations for each economy, economists and mathematicians have tried to define a metric that would allow them to determine whether the ongoing currency and coin denominations are efficient according to the specific metric. This literature dates to the 1980s and 1990s and is surveyed in this review article . For this blog post, following some of the literature, we define the following metric: The "burden of a cash payment" is the total number of tokens exchanged between the payer and the payee in both directions. A token is defined as one unit of an existing denomination (for example, one penny, one quarter, one dollar, or a 50-dollar banknote).
Following some of the literature, we also assume that both the payer and the payee (for example, a buyer and a seller) adhere to the "principle of least effort." According to this principle, once the payment dollar value is determined, the payer and the payee coordinate the payment so that they minimize the total number of tokens they exchange. That is, they attempt to minimize the sum of tokens that the payer initially hands in to the payee plus the number of tokens handed back to the payer as change.
Figure 1 illustrates the principle of least effort for transaction values from 1 to 25 cents.
Figure 1 shows that when the penny is in circulation (blue dots), payments in the amounts of 1 cent, 5 cents, 10 cents, and 25 cents require the payer to hand in only one coin and therefore no change is needed; a very easy transaction. However, a payment for 13 cents requires a minimum effort of exchanging four tokens. Either the payer hands in a combination of one dime and three pennies—a transaction that requires no change—or the payer hands in one dime and one nickel and receives two pennies back as change. Either way, the minimum effort is four tokens. As another example, figure 1 shows that the burden of paying 17 cents is also four tokens (the payer hands in one dime, one nickel, and two pennies). The burden of paying 18 cents is also four tokens (the payer hands in two dimes and receives two pennies as change).
Now, what would happen if hypothetically the penny is removed from circulation (see the orange dots in figure 1). Using the same rounding guidelines as in Canada 
, all payments valued between 3 and 7 cents are rounded to 5 cents (nickel), which reduces the burden of paying cash to one token. All payments between 8 and 12 cents are rounded to 10 cents (dime), which also reduce the burden to one token. All payment values from 13 to 17 cents are rounded to 15 cents, for which the burden is two tokens. All payments between 18 and 22 cents are rounded to 20 cents, for which the burden is two tokens. Finally, payments in the amount of 23 or 24 cents are rounded to 25 cents, for which the burden is only one token.
Calculating the burden of paying cash
Cash is the third-most-used payment instrument in the United States (see this report ). The United States has 12 denominations of currency notes and coins: $0.01, $0.05, $0.10, $0.25, $0.50, $1, $2, $5, $10, $20, $50, and $100. (The rarely used $2 bill will be removed from the computations below.) Table 2 displays computations of the burden of cash payments that were derived in this research paper .
The data used in the construction of table 2 are from the 2015 to 2019 editions of the Survey and Diary of Consumer Payment Choice, for which consumers record how much they paid in cash (and other payment methods). However, survey respondents do not record the precise denominations used for their cash payments. For that, we assume that the payee (merchant, seller) has all denominations. However, for the payer (consumer, buyer) we compute two opposite extreme scenarios: one, that payers have all available denominations (column two in the table), and two, that payers have only $20 bills that they withdrew from an ATM (column three). The first scenario underestimates the burden of paying cash because the payer and the payee exchange notes and coins according to the principle of least effort. The second scenario may overestimate the burden because paying with $20 bills may require a substantial amount of change. Nevertheless, it may provide a better approximation of cash transactions.
The first row in table 2 computes the average number of tokens (coins and banknotes) exchanged in all the cash transactions recorded in our consumer survey data. Column (1) shows that the average number of tokens exchanged according to the principle of least effort is 3.14 coins and notes. However, if buyers can pay only with $20 bills, they receive numerous tokens as change and the average burden increases to 4.96 (almost five tokens), as column (2) shows.
The second row applies our data to the same computations assuming that the penny is no longer in use and merchants round the pennies to their nearest 5-cent transaction value according to the rounding rule used in Canada (which we call symmetric rounding). Under the symmetric rounding rule, payments that end with 1 or 2 cents are rounded down to 0 pennies. Payments that end with 3, 4, 6, and 7 cents are rounded to 5 cents. Payments that end with 8 and 9 cents are rounded up to 10 cents. If buyers have all denominations, the average burden of paying cash falls from 3.14 to 2.729 tokens because pennies are no longer exchanged. If buyers pay only with $20 bills, the average burden falls from 4.96 to 4.55 tokens after the penny is eliminated.
The third row applies when payees (merchants or sellers) deviate from the symmetric rounding rule after the penny is eliminated and round only upwards to the nearest 5 cents. Under this rule, payments that end with 1, 2, 3, and 4 pennies are rounded up to 5 cents. Payments that end with 6, 7, 8, and 9 cents are rounded up to 10 cents. This shows that upward rounding to the nearest 5 cents does not much change the burden of paying cash relative to symmetric rounding. We use this scenario to verify that the penny elimination does not have any significant inflationary consequences (that is, consumer spending does not increase).
Two final remarks
One possible limitation of the results presented in table 2 is the assumption that the payee (seller) can always provide change with the least number of tokens. As happens to all of us, some merchants may run out of quarters, which may increase the number of dimes and nickels that they hand back as change to the payer (customer). However, we compensate for this deficiency by analyzing the scenario in column (2), in which payers do not have any denomination except for $20 bills that they obtained from an ATM.
Finally, the reader may wonder why the elimination of the penny resulted in a relatively small reduction in the burden of paying cash: from 3.14 to 2.729 tokens or from 4.96 to 4.55 tokens, as table 2 shows. This reduction contrasts with the theoretical simulations displayed in figure 1, which show a larger reduction in the range of one to two tokens. The reason for this difference could be that some sellers (and buyers) have already been rounding their cash payments to the nearest 5 cents to avoid dealing with pennies—even now, when the penny is still in circulation. In other words, it is possible that, for some transactions, both the payer and the payee agree to ignore the penny part of the payment. In addition, we cannot rule out the possibility that some survey respondents rounded the penny part of their reported cash payments.
In summary, economic theory suggests that removing the penny is likely to reduce the burden of cash payments in the economy, although the effect appears relatively small in our research, perhaps because some cash payments are already rounded to their nearest 5-cents value either at the point-of-sale or by our survey respondents.
Author's note: I would like to thank Tom Heintjes for most valuable comments and suggestions on earlier drafts and Whitney Strifler for the interactive charts.
By Oz Shy, senior policy adviser and economist in the Atlanta Fed's Research Department