This month, the Treasurer of the United States, Brandon Beach, pushed the last copper-alloyed zinc blank coin through the U.S. Mint’s coining machine and made the last penny. After 232 years, the U.S. Mint will no longer produce pennies, leaving the public with just nickels, dimes, and quarters (plus the occasional and rare half-dollar) with which to make change. In 2024, the Mint added 1.3 billion pennies into circulation, far exceeding the production totals for the other coins it makes (Slide 1). The truth is that the Mint spent 3.69 cents last year to produce pennies, and production costs doubled over the last decade, especially since Covid (Slide 2). The penny’s unprofitability is dragging down the seigniorage profits it makes from its entire coin production line (Slide 3).

Part of the reason the coin is so unprofitable is that, due to the increasing use of non-cash payment alternatives, the public does not return coins, especially pennies, back into circulation. The Mint continues to produce them, but the public often stores them away or even discards them (Slide 4). Even if it does not throw them out, the coins it does save are not worth its bother to deposit in banks or use for payments (Slide 5) in retail transactions.

Bank supervisors proposed easing capital requirements on large global banks subject to the enhanced Supplementary Leverage Ratio, which the industry complains is a binding constraint preventing them from investing in more Treasuries. But Slide 6 suggests that capital constraints may not be the only factor holding large banks back from buying more Treasurys, which already represent 8% of the balance sheet for all commercial banks. It probably also does not help the industry’s appetite to buy more bonds when existing bond portfolios are still underwater (Slide 7).

The Fed is paying close attention to the volatility in the Treasury repo market, which officials believe is a sign of stress in short-term liquidity that may be related to Quantitative Tightening (QT), which the Fed plans to suspend next month. For example, the Secured Overnight Financing Rate (SOFR) has been highly volatile lately when compared to the rate the Fed sets for awards under its Reverse Repo Facility (RRF) (Slide 8), where it borrows cash and sends collateral to money market funds. Fails to deliver and receive are also up among primary dealers as a sign of stress (Slide 9). However, the bar graph in Slide 10 presents clear proof that the drop in the balance of reserve deposits, which directly correlates with a stable trading market for Treasurys, is almost entirely due to the increase in the Treasury General Account (TGA) balance because of the shutdown and not because QT is reducing reserves in the system.