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Debate has existed for some time in the United States whether the penny should stop being minted, due to its small purchasing power and cost of production [1].

From what I understand, to discontinue its production would require direction from the federal government, since minting and circulating currency is a federal prerogative per the US Constitution Article 1 Section 8 [2]:

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

Hypothetically, if a state or its citizens were bothered enough to take action, could a state legally implement a scheme where pennies were phased out of circulation (e.g. stored in a giant warehouse where they are no longer used after they are spent)? The state would still allow them to be used as legal tender, but once they are spent businesses would send them to storage.

(Ignore the practicality of this proposal, such as the expenses involved in transporting and storing all these pennies, why taxpayers would want to pay to remove a currency from circulation, etc. I'm only interested in the legal aspect)

[1] https://en.wikipedia.org/wiki/Penny_debate_in_the_United_States
[2] https://www.law.cornell.edu/constitution/articlei

  • I don't get it. Suppose Joe buys a cup of coffee and pays with some pennies. You're saying the coffee shop would be obliged to send those pennies to the warehouse? Would they be compensated for their value? Conversely, what is supposed to happen when Alice goes to the bank to cash a check for $100.03? Whichever way you round, either Alice or the bank is going to be shorted a couple of pennies - do they get compensated somehow? – Nate Eldredge May 25 at 22:48
  • Some places that have phased out pennies, like Canada and Australia, round to the nearest next coin, e.g. 5c for the U.S. Because of these rounding errors, you can sometimes win, and sometimes lose, but it should roughly average out. For the sake of the question, let's say that the businesses will have transportation costs covered, and the pennies will be exchanged (if the shop sends in 105 pennies, they'll receive a dollar bill and a 5 cent coin). – ChiefOfGxBxL May 25 at 22:56
  • The Netherlands has done this a well for the 1 and 2 cent pieces, rounding to 5. Accounts still have the exact sums. So the shop would pay in the coins and the bank just avoids paying them out. – Mark Johnson May 26 at 6:02
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Article 1 Section 8 appears to answer your question - only the Federal Government has the power to regulate the value of currency. Unilaterally forbidding the use of pennies as currency would be a regulation of their value (from 1 cent to 0 cents). A state government might be allowed to refuse pennies for the purpose of paying for a service in advance like a private business can, but like a private business are required to accept them as legal tender for the purpose of repaying debts, judgements, etc.

Responding to the edited post, I'm inclined to say that the proposed plan is still "regulating" currency, in the same way that only the Federal government is the only entity authorized to destroy worn out currency (which it obtains by fair exchange). As Nate Eldredge points out, this may also violate the Commerce Clause of the same section, both in terms of interstate transactions and in terms of the exchange of currency between persons of different states and the implementing state.

However, if it was implemented as suggested in comments, where businesses were required to exchange whatever pennies they receive with the state government for an equal amount of other currency, it might not run afoul of either of these clauses. This is probably a question the Supreme Court would have to decide, since a lot of hypothetical factors could come into play. At first glance, there doesn't appear to be any factual difference between a state holding pennies in storage indefinitely and the state holding any other currency in storage indefinitely, which they are allowed to do so long as they don't violate any part of USC Title 18, Chapter 17 (e.g., melt the pennies for the copper). On the other hand, the Federal Government could argue that the storage of pennies for the purpose of removing them from circulation is a form of currency regulation even if the action would otherwise be legal, or that the state's actions are impactful enough to affect interstate commerce even though they only directly impact commerce in the state and therefore Congress could pass a law outlawing the practice.

  • To clarify, I'm not suggesting the state would forbid the use of pennies, only that once they were spent they would be stored somewhere to never be used again. In this hypothetical scheme businesses would still accept pennies to pay for things. But the state would have the businesses no longer issue pennies, effectively removing them from circulation. – ChiefOfGxBxL May 25 at 22:35
  • Another point might be that this scheme could affect interstate commerce, which Congress gets to regulate. – Nate Eldredge May 25 at 22:50
  • @NateEldredge Only Congress can regulate interstate commerce, but that doesn't mean the states can't act in ways that affect interstate commerce; they clearly do that all the time. The question is going to be whether this plan is an undue burden on interstate commerce. My initial guess is no, but I'd bet folks in financial fields could generate stronger arguments to the contrary. – bdb484 Jun 25 at 3:09

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