Will Canada go Penny-less?
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Bank's penny-less thoughts
Federal draft report says, unofficially, inflationary effect would be negligible
John Goddard - February 17th 2007.

Eliminating the penny would cause little or no inflationary effect, and in some cases might cause prices to fall, says a draft report written for the Bank of Canada.

Prices frequently end in a "9" to create the perception that, for example, $9.99 is much cheaper than $10, says the draft. If the penny were ditched, merchants might post the price at $9.95, saving a customer four cents. "This would cause the level of the (Consumer Price Index) to fall," the draft suggests.

The Bank of Canada released the three-page internal paper yesterday following a call from a large financial institution for Ottawa to chuck the penny.

The Desjardins Group said that to speed the process, the Bank of Canada could publish research stating that killing the coin would have no inflationary effect. Consumers would feel reassured and the finance minister would feel comfortable making the change.

In releasing the paper yesterday, the Bank of Canada emphasized that it has no official thoughts on the penny. The paper was a draft written for internal use two years ago and was never adopted as policy, a bank representative said.

The findings, however, address a top concern raised by readers in a poll at www.thestar.com: that retailers would raise prices if the penny were dropped.

"Watch out – another way to pick your pockets," wrote Stephen McCahery of Brampton.

"If the bill says $7.01, businesses don't want to lose that extra cent," said Mark Fields of Brights Grove, Ont., suggesting a customer would pay $7.05.

First of all, says the Bank of Canada paper, eliminating the penny would not affect debit and credit card purchases.

In cash transactions, merchants would probably round off prices to the nearest nickel. Cash purchases ending in 3, 4, 8 and 9 would be rounded up. Those ending in 1, 2, 6 and 7 would be rounded down. The result would be neutral.

"Competitive pressures among retailers would be expected to eliminate any significant upward bias to rounding," the paper says.

As to the expectation that a price of $9.99 might drop to $9.95, the paper also gives a counterargument. Since sales taxes would be added, a posted price would not need to be rounded to the nearest nickel. Only the final price would.

Judging from the online poll, Canadians might already be prepared to stop spending a penny. Of 869 respondents, 56 per cent argued for taking the coin out of circulation, and some suggested how to do so:

  • Melt them into bullets for our troops in Afghanistan, wrote John Bandalewicz of London.

  • Cash them to buy oranges for African children, recommended Betty Morgan of Port Williams, N.S., whose church recently did just that after a penny drive.

  • Gather them and redistribute them to single mothers with small children – "a 20-pound child will be given 20 pounds worth of pennies," said Paul Lauzon of Ottawa.

  • Turn them into jewelry.

    Even poor people despise the penny, some readers argued.

    "I remember seeing a beggar outside the then Simpsons store at Yonge and Queen," wrote Kieran Kerr of Kitchener. "He was going through the coins in his begging cap, sorted out the pennies and tossed them all into the street."

    Nathan Mendleson of Toronto spoke of a different complaint.

    "Pennies are constantly waking me up at night," he said. "I keep a jar of them on my dresser.

    "Every night at around 3 a.m. my cat jumps on the dresser, picks out two or three pennies, paws them around on the dresser top, then flings them onto my hardwood floor."


    Time to ditch the penny?
    Tara Perkins - February 16th 2007.

    We toss them in the garbage, lose them in couches, hoard them in jars, waste them in fountains, and leave them behind at the cash register.

    Canadian consumers would be better off if we just got rid of the penny, concludes a report released yesterday by the Desjardins Group, one of the biggest financial institutions in Canada.

    Canada issued 30.5 billion pennies between 1908 and 2005. Even assuming a third of them have now disappeared, there are still 600 per Canadian in circulation – and that's costing the country at least $130 million per year or $4 a person, the report said.

    It's not the first time the federal government has been called upon to ditch the one-cent coin.

    "I think any sensible benefit-cost analysis on the penny would conclude that it should no longer be used," said Don Drummond, chief economist of TD Bank Financial Group, yesterday.

    "Witness the number of people who just walk away from the cash register when pennies are due back, or the number of cash registers where there is a bowl in front to take or leave a penny, or how often the person at the register rounds the change up to the nearest nickel. These are all signs that the costs exceed the benefits."

    One of the arguments for keeping the penny circulating is that prices could go up without it. But many experts say that's not true.

    The total on cash transactions would be rounded to the nearest five cents. So, a bill that now comes to $9.98 or $9.99 would cost $10, but so would those that are now $10.01 or $10.02.

    "There is competition in the marketplace," Drummond said. "If (stores) could all bump up their price a few pennies, they would have already done it."

    Only 40 per cent of Ontarians still use pennies for purchases, according to a survey by Desjardins. Women tend to use their change when shopping more than men do, as do those aged 66 and over.

    Figures show that consumers hoard pennies or throw them away rather than putting them back into distribution, the Desjardins report said.

    Last year, the United States Mint revealed that it will cost about 1.4 cents (U.S.) this year to make its one-cent coin. In Canada, the cost of producing a penny is "less than one cent," said Royal Canadian Mint spokeswoman Christine Aquino.

    The $130 million cost of keeping pennies in circulation includes production, storage and the cost of simply dealing with them – $20 million for banks and other financial institutions and about $60 million for retailers, Desjardins said. Both those sectors pass the costs on to consumers, it said.

    There are other costs too, such as the environmental impact of processing the metal, manufacturing the alloys, and transporting the pennies, Desjardins said.

    Although the majority of opinions posted on thestar.com yesterday supported banishing the penny, one from Safi Habib of Bramalea made a poignant plea: "I love the true symbol of Canada, the maple leaves ... If we do away with the penny, then at least get that maple leaf on another coin."

    Australia and New Zealand are among the countries that have already abandoned pennies. Although U.S. Republican Congressman Jim Kolbe tabled a bill last summer to phase out the penny, Desjardins said it will likely take the Americans a few more years to do that.

    "The majority of them want to keep it," the report said. But there's no need for Canada to follow the U.S., which is "very conservative, particularly with its symbols," Desjardins said.

    Canada's finance department periodically reviews the status of the penny, as it does all of the coins produced by the mint.

    So far, those reviews have concluded that the elimination of the penny is not warranted. The finance department has not directly consulted retailers or the public on the issue.

    The decision to get rid of the penny rests with the minister of finance. It would be easier for Jim Flaherty to make the move if the Bank of Canada would publish research on the issue, and publicly state that removing the penny would have no effect on inflation, Desjardins said.

    The Bank of Canada said yesterday that, because the decision rests with Flaherty, it "does not have an official position and has not published any papers on this issue."

    Dan Miles, a spokesman for Flaherty, said "we'd like to review the report and see what it has to say before we make any comment."

  • American Treasury trying $1 coin - again.
    By WILL LESTER.

    WASHINGTON - Maybe Susan B. Anthony and Sacagawea should not take public rejection personally. It’s not easy overcoming people’s indifference to dollar coins, even those honoring such historic figures.

    An AP-Ipsos poll found that three-fourths of people surveyed oppose replacing the dollar bill, featuring George Washington, with a dollar coin. People are split evenly on the idea of having both a dollar bill and a dollar coin.

    A new version of the coin, paying tribute to American presidents, went into general circulation Thursday. Even though doing away with the bill could save hundreds of millions of dollars each year in printing costs, there is no plan to scrap the bill in favor of the more durable coin.

    ‘‘I really don’t see any use for it,’’ Larry Ashbaugh, a retiree from Bristolville, Ohio, said of the dollar coin. ‘‘We tried it before. It didn’t fly.’’

    0Two recent efforts to promote wide usage of a dollar coin proved unsuccessful. A quarter-century ago, it showed feminist Susan B. Anthony on the front; then one in 2000 featuring Sacagawea, the Shoshone Indian who helped guide the Lewis and Clark expedition.

    The latest dollar coin will bear Washington’s image, followed later this year by those of John Adams, Thomas Jefferson and James Madison. A different president will appear on the golden dollar coins every three months.

    The series of coins will depict four different presidents per year, in the order they served.

    Congress voted to create the new dollar coin, betting that this series would be more popular than its recent predecessors.

    The Susan B. Anthony dollar put the image of the women’s rights activist on a small silver coin that looked a lot like a quarter. The U.S Mint was left with millions of unused coins.

    As for the Sacagawea dollar, gold in color, millions of the coins also piled up in bank vaults for the same reason: lack of demand.

    People say they just prefer the traditional greenback.

    ‘‘The dollar bill is lighter, takes up less space in a clutch or a man’s wallet and paper money counts easier and stacks up easier than metallic coins,’’ said Nena Wise of York, Pa.

    People have strong feelings about their money, even the penny.

    A congressional effort to reduce the need for the cent piece failed even though it costs more to produce the copper-colored coin than the coin is worth.

    When people were asked whether the penny should be eliminated, 71 percent said no, according to the poll of 1,000 adults conducted Nov, 28-30. Some fear that getting rid of the penny will cause product prices to be rounded up, perhaps increasing inflation.

    In other poll findings:

  • 53 percent said they carry their loose change collected during the day to use for future purchases.

  • 42 percent put their loose change in a jar or piggy bank each day.

  • 48 percent said they use cash for purchases under $10.

  • 28 percent said they usually use cash in such cases, but sometimes use credit or debit cards, according to the poll with a margin of sampling error of plus or minus 3 percentage points.

    Rather than a high-profile ad campaign like the one used to introduce the Sacagawea dollar, the Mint is trying a more grass-roots approach. The agency is talking to the Federal Reserve, banks and vending machine operators to stir up interest in the new dollar coin.

    Supporters of the new presidential dollar coin point to the success of the 50-state quarter program. Begun in 1999, this program has introduced millions of people to coin collecting for the first time.

    For Richard Wander of Albany, N.Y, the dollar coin is a welcome addition because he is ‘‘kind of a collector.’’

    ‘‘I think it’s good to have both,’’ he said. ‘‘Instead of taking time to put four quarters in a parking meter, you could put in a dollar.

    ‘‘But I think dollar bills are part of the economic system,’’ he said, ‘‘and they work fine.’’

    The presidential coins will be the 14th dollar coin series produced by the Mint going back to 1794. The Susan B. Anthony replaced the Eisenhower dollar in 1979.

    Before the Eisenhower dollar’s introduction in 1971, there was a gap of 36 years when the Mint did not produce a dollar coin after the last Peace dollar was minted in 1935.

    The public can start getting the Washington dollars on Thursday from commercial banks that have placed orders with the Federal Reserve, which handles coin distribution for the Mint.

    U.S. Mint Director Edmund C. Moy said he was encouraged by the initial demand for the new coin. The Fed has ordered 300 million Washington dollars so far.

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