Canada Bids Adieu to the Penny

by Tristan Hugo-Webb 0

Canada stopped minting the penny in May 2012,which was the beginning of the end for the one-cent coins that havebeen in circulation for over 150 year. But in early February, theCanadian mint abruptly stopped distributing pennies. While Canadianconsumers have flocked to social media to pay their respects, andin some cases, lightheartedly decry the potential one or two centprice hikes that will accompany with the move, the governmentbelieves the end of the penny could save up to $11 million (CAD) ayear.

While the penny had a good run, inflation has severely diminishedits value and the rising prices of natural resources involved inthe production of the coin meant that it cost 1.6 cents to produceeach penny. While saving $11 million annually is small changecompared with the overall Canadian Gross Domestic Product, makingthe change to the nearest cent for consumers and both small andlarge retailers is considered “economic waste” as they generallyjust end up collecting dust at home which is seen as the mainmotivation behind the move. In the speech announcing the end of thepenny in March 2012, Jim Flaherty, Canada’s finance minister statedthat, “Pennies take up too much space on our dressers at home….Wewill, therefore, stop making them.”

Despite the announcements, consumer awareness overall is relativelylow and both consumers and businesses are just now coming to termswith the changes. “Business awareness is low….There certainly willbe a few transitional hiccups,” says Dan Kelly, president of theCanadian Federation of Independent Business (CFIB). To improveconsumer awareness, the Canadian mint has announced a broad socialmedia campaign alerting consumers to the changes as well ascreating over 200,000 fliers to be placed across Post Offices and aseries of print, radio and TV advertisements.

In the meantime, businesses are encouraged to begin rounding cashtransactions to the nearest five-cent increment. For example, atransaction totaling $1.03 would round up to $1.05, while $1.07would round down to $1.05. All other transactions including debit,credit and check based will continue to be settled to the cent.However, a growing number of transactions in Canada are conductedthrough electronic-based payment instruments, meaning consumers maysee little to no difference. Even if they do, some merchants may bewilling to still give out pennies such as Ian Kimmerly. “We have alot of older customers who remember when a penny was worthsomething. For those customers, we’ll be happy to give (pennies) tothem,” says Kimmerly.

While the end of the penny is not expected to bring about seriouschanges to the present and future state of the Canadian economy,the move does raise questions about the potential longevity of theUnited States penny. Similar to Canada, the American penny costsmore to manufacture than it is worth (2.4 cents for every pennymade). However, if the United States were to end penny production,consumers would turn to greater use of the nickel, which costs themint even more (11.2 cents for every nickel made). So, it wouldappear the American penny is safe for the time being.

However, the days of small-valued coins in general may benumbered. In recent years, a number of countries have endedproduction of their smallest unit of currency including but notlimited to, Britain, France, Israel and Spain. Other countries,including Australia, Denmark, New Zealand and Norway haveeliminated many of the smallest denominated coins. With non-cashtransactions expected to grow significantly around the world in thecoming years, governments are increasingly going to find itdifficult to justify circulating money which costs more tomanufacture than it is worth, especially as inflation and prices ofnatural resources needed in the manufacturing process continue torise significantly. In the end, the demise of the Canadian pennyunderscores the declining clout of traditional paymentinstruments.