The American penny has been discontinued due to production costs exceeding its face value, and the nickel faces similar challenges, potentially leading to its discontinuation as well. Pennies cost nearly 5 cents to produce, resulting in a loss of 4 cents per coin, while nickels cost nearly 9 cents to make, meaning a loss of nearly 9 cents per coin.
These elevated production costs are largely driven by the rising prices of copper and nickel, which have doubled since late 2016. While efforts are underway to reduce the cost of producing nickels to below 5 cents, potentially within a year with a new coin composition that looks identical, the nickel's usefulness is also diminishing.
Americans are using cash less frequently, and other countries like New Zealand and Australia have phased out their equivalent small-change coins relatively soon after discontinuing their pennies. Experts suggest that while the nickel's demise is likely, it may take 15 to 20 years.
The transition away from cash raises concerns, particularly for lower-income consumers, as it benefits large banks and credit card companies through transaction fees. Merchants are currently grappling with penny shortages, with some considering rounding cash purchases to the nearest 5 cents and seeking legislative confirmation.
Eliminating nickels and rounding to the nearest dime would result in a significantly larger "rounding tax" for consumers. Despite potential cost reductions in nickel production, administrative and distribution costs still represent a significant portion of each coin's expense, making it difficult to consistently stay below the 5-cent production threshold.
Nevertheless, given the lengthy debate over the penny's future, experts do not anticipate an immediate end to the nickel.
