Monday, April 02, 2012

Canada to get rid of their penny

Later this year, Canada is going to get rid of their penny. As inflation happens, and as the price of metals also rise, the penny is becoming less and less economically viable:
The penny coin, loved by some but an annoyance to many, will be withdrawn from circulation this year because it costs too much to make and is a pecuniary pest.

“The penny is a currency without any currency in Canada,” Finance Minister Jim Flaherty said Thursday.

Ottawa said the penny retained only one twentieth of its original purchasing power. It costs 1.6 Canadian cents to produce each one cent coin and stamping out the penny will save around C$11 million ($11 million) a year.
They are worth almost nothing, they are cumbersome and they cost the government at least $130-million per year to keep in circulation. Most vending machines do not accept them and bartenders sneer at the sight of them – yet the Mint is still busy pumping out 25 pennies per Canadian per year – at a cost of 1.5 cents apiece. “If a coin has such low purchasing power that consumers refuse it, throw it away or horde it without worrying about putting it back into the distribution system, it would seem logical to stop producing it,” reads a 2007 report by Desjardins urging the penny’s demise. The senate joined in with an anti-penny report in 2010. “It is a piece of currency, quite frankly, that lacks currency,” said Senator Irving Gerstein at the time (the joke is popular; during Thursday’s budget announcement Mr. Flaherty said “the penny is a currency without any currency.”)
The YouTuber C.G.P. Grey made a video a short while ago called "Death to Pennies", and while the depiction is of the United States, the general principle holds for Canada (and for many developed nations).

So, what will you be able to look forward to in Canada? Perhaps it will be like in the much of the world, where the price of the product is the price that you pay; no sales tax added at the cash register. Nah. That would be too convenient (and likely massively difficult to actually manage, considering how sales taxes and VATs are fundamentally different beasts, and changing from one to another - while seeming beneficial to the populace - will likely create massive strife in politics, but that's another story). Instead, there will be rounding. Just in case you can't read the graphic, this is the gist:
  • $0.98 to $1.02 = $1.00
  • $1.03 to $1.07 = $1.05
  • $1.08 to $1.12 = $1.10
(Yes, I extended the ranges to make it clear as to what I'm doing.) This means that, on average, the net cost of goods will be the same after the removal of the penny.

Of, the rounding is only valid if you are working with a cash economy. If you are, however, using a personal cheque or an electronic payment, then the pennies still exist (at least for now):
Non-cash payments such as checks, credit and debit cards will continue to be settled to the cent.
That's the benefit, of course, of using non-physical payment. In fact prices are already rounded to the nearest smallest-monetary-unit, even though they might be listed otherwise. (Here, think of gas prices, where the price may be $4.019. What's the $0.009 got to do with the price? After all, the price is effectively $4.02, but it gets rounded up at the point of sale.) Getting rid of pennies merely means that - instead of having 100 pennies in a dollar, you'll have 20 nickles in a dollar, although the loss of the nickle is in the works, too:
Soon enough. Nickels are already relatively useless – and like all coins they’re dropping in value each year. New Zealand phased out its one-cent coin in the 1980s and then its five-cent coin in 2009. It’s a strategy Desjardins strongly recommends, since eliminating more than one coin at a time could cause unneeded confusion and economic damage. Once the penny is successfully gone, “the federal government should consider, a few years later, the relevance of removing the five-cent coin,” stated Desjardins in 2007.

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