Canada Ditches the Penny

#Money

Thu, Mar 29th, 2012 17:00 by capnasty NEWS

The Canadian Federal Budget is here and among many of the cuts, Finance Minister Jim Flaherty announced that the "useless" penny will be phased out. A penny is the equivalent of one one-hundredth of a Canadian dollar.

Finance Minister Jim Flaherty has long hinted he'd like to scrap the coin, which now costs around 1½ cents per penny to make and as much as three cents to distribute (for the record, the coin's negative seigniorage is due not to its "material" costs, which are less than its face value, but to its manufacturing and distribution). The private sector also loses money on the pieces -- sorting, counting, rolling and transporting them costs some $100 million a year. Yet it retains just five per cent of the purchasing power it had on Jan. 2, 1908, the day Lady Grey, consort to governor general Earl Grey, struck the first-ever Canadian-made penny. "I think it's inevitable that eventually the smaller coin -- the penny -- would be eliminated," Flaherty has said. "I remember pennies being useful things," he added, with reference to his own youth of baseball cards and penny bubble gum. "It's a question," he added, "of usefulness."

The savings, says the Canadian government, will be most felt by the private sector, while consumers who pay by cash will simply have to round prices to the nearest nickel:

A study by one Canadian bank, Desjardins, has estimated the economic costs of the penny for the private sector total $150-million annually. This includes counting, storing and transporting the coins.

The penny will continue to be Canada's smallest unit of currency for pricing goods and services. Canadians who use credit or debit cards to make purchases won't have to worry about rounding-off transactions.

The Canadian government is hardly alone in scrapping the penny. Federal officials noted that 17 other countries have ceased production of low-denomination coins over the past four decades.

The Finance Department recommends businesses cope with the demise of the penny by rounding off the value of cash transactions to the nearest five-cent increment.

This would take place after tax has been added to the price.

Ottawa says it won't be policing consumer-business transactions, but added that "businesses are expected to round prices in a fair, consistent and transparent manner."

  1194

 

You may also be interested in:

Top US banker criticises bonuses
Detroit Has Declared Bankruptcy
In Singapore, Park Your Car in Your High-Rise Apartment
No-interest MasterCard Aimed at Devout Muslims
Credit Card Data Can Be Easily Stolen With a Smartphone