Canada Kills Its Penny; Can We Please Be Next?

(Photo: mrgreen09)

If you’ve been reading this blog for a while, you may know that I am devoutly anti-penny. This includes a rant on 60 Minutes in which I argue that the penny should be killed off, as inflation has rendered it worse than worthless. 

The U.S. government remains unpersuaded, but our good neighbors to the north are about to take the leap (following the lead, it should be said, of several other countries).

Here are details from Canada’s Budget 2012 and here’s a CBC report:

In part because of rising prices for the metals it’s made of, it actually costs 1.6 cents to produce every penny. The government estimates it loses $11 million a year producing and distributing the penny, and that doesn’t include the costs and frustrations for businesses and consumers that use them in transactions.

A 2008 report by Quebec-based bank Desjardins estimated the penny’s existence cost Canada’s economy about $150 million in 2006. Canada’s big banks alone handle more than nine billion pennies a year, which costs them $20 million annually to process. …

A 2005 study by the Bank of Canada concluded that doing away with the penny wouldn’t lead to any inflation. And Ottawa says similar systems implemented in Norway, Australia, New Zealand and elsewhere didn’t lead to systemic price increases.

(HT: Adam Scott, Tyler Griffin)

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  1. Danilo Balu says:

    It looks like in Neatherland they abolished the 01 cents coins… I spent holidays there recently and I´ve been told so…

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    • Pawel Debik says:

      Technically, You can still pay with the 1 Euro cent coins in the Netherlands, but almost everyone agrees that it’s inconvenient. Most stores will deny the 1 cent coins, just like they will deny paying with 500 euro bills.

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  2. Erica says:

    Here in Brazil we don’t have pennies since, I don’t know since when. My little cousins, a 5 and a 3yo, don’t know what a penny is. By the other hand, we do have a problem with change since ever, but I think it is a problem in the educational system. Hardly a cashier won’t ask you: Do you have 10 cents to help in the change?

    Good thing that I found a Canadian penny on my purse yesterday from my trip to Canada. I will keep it forever now.

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    • Mike B says:

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      • Matt says:

        Somehow innacurate!!!
        -if by recent you mean 20 years! Ok, but hyperinflation was banned from Brazil a long ago
        -A penny could be a mark of economic strength, or it could be just stupid, if Canada calcultes that each penny costs 1.6 cents (which is 1.6038 USD, Canadian dollar is stronger today!!) than it is SMART, like Canada Plans to do, and abolish the penny, plus there are other costs. Therefore maybe the US should learn from other cultures as well.
        -I sense a little bit of prejudice in your comments, you should put more economic basis to your arguments.
        Cheers Brother!

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      • brazzy says:

        Given that the one Candian dollar is right now worth almost exactly one US Dollar, which is close to an all time high, that is an amazingly ignorant remark.

        Given that the 1 centavo coin in Brazil was discontinued in 2005, when its exchange rate to the dollar was pretty stable and over a decade after the money reform that ended Brazil’s problems with constant inflation, every single statement you made is wrong. Congratulations!

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      • Prior Semblance says:

        Even without hyperinflation the penny is more trouble than it’s worth. It’s not hard to round to nearest 5 cents.

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      • His Shadow says:

        Mike B’s comment can be referenced when ever anyone argues that the Ugly American is just a cliche…

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    • daniel says:

      where do you live in brazil?
      I live in Belo Horizonte and here, they still pricing things with pennies.

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  3. Happy Canadian says:

    And while you’re at it, add color to your paper currency so that it is easier to distinguish a one dollar bill from a twenty. And eliminate your one dollar bill and use coins.

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    • Mike B says:

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    • Matt says:

      I couldnt agree more my friend! I would also add two dollars coin, like the Euro.
      Something very interesting is that each bill (from 5 to 500 euros) have different sizes, so it is easier for blind people to distinguish, and also difficults counterfeiting.
      Best Regards!

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      • Imad Qureshi says:

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      • Mike B says:

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      • Rob says:

        Too difficult to put a coin in a g-string!

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    • Dark Penguin says:

      But we do have different colors! Have you never seen our peach-colored tens? :)

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    • Mira says:

      I agree with the first bit–different colors AND sizes would be great (like Australia has). But I absolutely hated the dollar and 2 dollar coins there…dollar bills weigh SO much less in your pocket and are much cheaper to produce.

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      • ghoppe says:

        The lifecycle of a US one-dollar bill is an average of 21 months. It costs 4.2 cents to produce. That’s a rough cost of 2.4 cents per year.
        The life-expectancy of a Canadian one-dollar coin is 20 years. It costs 40 cents to produce. That’s an approximate cost of 2 cents per year.

        So, already there is a cost savings of about 20% when switching to coins.

        But the Canadian budget just announced has a provision to change the composition of the dollar and two-dollar coin from bronze-plated nickel to steel, which will drop the cost of the coin to 4-6 cents each, saving the Government about $16 million per year, and making it about 6-10 times more cost effective than the American paper dollar.

        For me, the convenience of being able to use dollar and two-dollar coins in vending machines rather than horrid bill reader things outweighs the minimal convenience of storing a wad of dollars in the wallet.

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    • J says:

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    • pawnman says:

      Dollar coins won’t go in my wallet the way dollar bills do. I hate carrying coins around…I either have to dig around my keys to find them in my pocket, or they ding up my cell phone in the opposite pocket. No, I’ll stick with the ability to keep all my currency in my wallet, thanks.

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  4. Mark says:

    I remember when they got rid of 1 and 2 cent coins in Australia. Overall, it made things easier, but there were teething problems…

    The prices didn’t change, but what you paid did. Let me explain. If an item costs $1.76, you only paid $1.75 – it was rounded down. If it cost $1.88, you paid $1.90 – it was rounded up.

    But then people realised that if they bought 2 items at $1.77, the total cost would be $3.44 and rounded up to $3.45. It would save them 5 cents to buy them separately.

    So some people started working out the cheapest way to buy their weekly shop, often conducting 10′s of transactions (where previously it would have been 1). The supermarkets banned that practice and that caused an uproar.

    Of course, no one cares now but there was certainly an adjustment period at the start.

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    • Happy Canadian says:

      Is the arithmetic correct? 2 items @ $1.77 = $3.54, which is rounded up to $3.55. Buying them separately would total $3.50, a savings of 5 cents as you say.

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    • Joe Dokes says:

      Mark,

      I don’t doubt your story is true, but this truly shows that people don’t understand the concept of opportunity cost. At most a shopper could save on average 2.4 cents per transaction. As a result with ten transactions a person could save about a quarter.

      Given the time, of calculating the savings plus the extra time required to check out, a person would be hard pressed to earn even a dollar per hour.

      Regards,

      Joe Dokes

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    • Ben Zemm says:

      When Australia first first removed 1 and 2 cent coins all prices were rounded DOWN. So a $1.99 item would have cost $1.95. Buy two and it would have been $3.90 separately vs $3.95 together vs $3.98 on EFTPOS – starting to get slightly more significant. I remember this clearly: filling fuel I’d made sure to go to $xx.04 instead of an even $xx.00. Then they started rounding to the nearest 5c, which removed a lot of that practice.

      Now there’s a movement to remove 5c coins. This might also let other coins be resized: Our 50c coin is one of the physically largest in the world, at ~32mm in diameter. NZ had the same/similar sizes but since they got rid of 5c the silver coins have all been reduced in size.

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  5. Flyer says:

    Overseas military bases have been pennyless for decades, with no ill effects. Kill the penny!

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  6. Trent says:

    Although there is no 1 or 2 cent coins in Australia anymore, there is still pricing to support it. I’m a proponent of eliminating these useless things; but there is always an interesting question about taxation I have.

    If a product at McDonalds is $1.98 or 1.99 – this gets rounded up to $2 (stores caught on very quick about the round down, so now all items are x8, or x9).

    Technically, there is 1 or 2 cents tax free… Across a large enough number of transactions – say McDonalds, this would end up in the hundreds of thousands each year right? Does this money just get ‘written’ off the books, does it end up in someones bank account, or somehow taken out of the balance sheet – as it’s technically unearned, and not even declarable income…

    Anyone know how this works exactly?

    Trent @ http://www.worktraveldream.com

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    • Mike B says:

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    • Enter your name... says:

      I’m not sure that those extra cents would be considered a “sale”, so you wouldn’t collect sales tax on them. The amount of money you send to the sales tax agency is the amount you actually collected, not the amount that would have been due if you calculated it on a single transaction of your total sales for the year. However, the extra cent would still be taxable income.

      As for rounding up… it’s worth remembering how few transactions are paid in cash these days in the first place, and eliminating the physical coin would not affect credit card, debit card, or check transactions. For those rare retail cash transactions, you could eliminate this concern by rounding down no matter what. Alternatively, the customer can arrange this by paying with a debit card if it would round up and with cash if it would round down.

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    • Alice says:

      “stores caught on very quick about the round down, so now all items are x8, or x9″

      ick.

      McDonalds might have caught on for individual meals – but in the world where you regularly buy five -ten items the rounding up becomes rounding down – so the buyer wins, not the seller.

      And also, who is it tax free to?? And how? When you make the payment the company will note how you pay and show rounding up or down on the receipt – I’d be very surprised if having shown the rounding to the customer it’s then ignored for tax purposes – the Australian government were not born yesterday.

      Additionally, at McDonalds, and most places you can pay electronically and pay the $2.99 on your credit/debit card even though with rounding you’d pay $3 in cash. Pennies still exist in the electronic economy.

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    • Marian says:

      You’re not from U.S., right?
      1.99 means about 2.10 to 2.15 in real life. Because of the sales tax.

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  7. Bodger says:

    Can we please include the dollar bill too when the housecleaning is started? It seems that other countries manage to get along with coins for the fiddling small denominations — Canada and the UK come immediately to mind — and they’ve already proven that taking that step does not cause the disintegration of society. And it saves money making money in the long run.

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    • Mike B says:

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      • Bodger says:

        Then by that standard everything will be better if all coins are eliminated making every purchase seem more ‘salient’. Interesting point. Perhaps the answer is to have nothing but large colorful paper money in a single denomination of 1¢. Then every purchase, no matter how trivial, will seem important. Or maybe not…

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      • Ross says:

        You either have low expectations of yourself, or of society in general if you think people can’t fathom that this ‘lil ol’ coin is worth the same as one of them paper currencies. The cashier doesn’t ask for, “A couple of the big coins” when giving you the total, they tell you it is $2.45.

        I’ll give you the pros and cons of coin currency.
        Pro: You think you have some spare change in your pocket, you reach in and find $7.
        Con: Coins aren’t practical for wallets, but chances are you already carried change around.

        So much is don’t with credit or debit, it isn’t an issue really.

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      • Dark Penguin says:

        So what you’re saying is that I need for the government to provide me with only awkward coins and bills in obsolete denominations to help me curb my spending?

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      • Mike B says:

        @Ross Studies have shown that people value coins less than paper currency. When I went to France back before the Euro they had 10 franc coins and of course everything in vending machines costs about 10 Francs ($2). What was worse that as the trip went on I found myself dropping a lot of 10F coins into vending machines without giving it a second thought.

        Mental valuation of change vs bills aside, feeding coins into a machine is far more efficient than bills, therefore if you want people to more readily part with their money mint high denomination coins.

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      • ghoppe says:

        Let me get this straight… you believe it’s a *good* thing for the economy to encourage people to hoard their paper bills rather than spend coins on impulse buys?

        Even if it were a good thing to encourage savings of small denominations of stagnant incomes, your premise is flawed. I live in Canada, and have a coin jar where I place coins I remove from my pockets when I do laundry, etc. This jar contains many one and two dollar coins I have “saved” which otherwise would have been spent more easily had they been safely in the confines of my wallet.

        Of course these large denomination coins in this jar are pretty conveniently used before I leave when I plan to plug parking meters, use a vending machine, and so forth.

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    • Dave says:

      So would patrons have to use a 5-dollar bill to tip at the strip club? My guess is a lack of 1s would lead to less tipping and ultimately hurt the strippers. Is that what you want? to hurt strippers?! lol

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      • Ross says:

        Make it hail baby!

        But really, I’ve asked about that since moving to Canada, and someone told me you just have rolls of loonies and you stack them on the stage in front of you. They do not wear those change dispensers.

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      • Trent says:

        Good to see someone is thinking about the strippers! Australia got around this – you don’t pay strippers with real currency, instead you buy “notes” from the strip club bar and they come in 1,2,5,10,20,50,100 denominations.

        Trent @ http://www.worktraveldream.com

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      • Mike B says:

        Oh yay, private script. It’s not like minting useful currency denominations is an important government function.

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      • Sbard says:

        A number of strip clubs fill their bar registers with $2 bills and give them out as change to encourage the customers to tip bigger than they otherwise would.

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    • pawnman says:

      Strippers aren’t as keen on dollar coins as they are on dollar bills.

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  8. Mike MacDonald says:

    A penny saved is a penny spurned.

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