Canada may Scrap 1 Cent Coins

[Bimat]

15 December 2010 Last updated at 03:00 GMT

Canada Senate calls for one-cent coin to be scrapped

A Canadian Senate committee has urged the government to remove the one-cent coin, or penny, from circulation, saying the cost of producing it exceeds its financial value.

"The fact is that the penny is not of much use any more," the Senate Finance Committee chairman said.

There are roughly 22bn pennies in circulation, or about 600 for each Canadian citizen.

It costs Canada an estimated 1.5 cents to produce each penny coin.

The committee recommended the government stop production of the penny as soon as possible and that the coins currently in circulation be withdrawn during the next two years.

"Most of us know the penny as little more than a nuisance that slows down the line at grocery stores, and ends up under our couches or in drawers," said chairman Richard Neufeld.

A 2005 study found that getting rid of the penny would save more than C$131m (£83m; US$130m) in the cost of producing, storing and transporting the coins.



Source: BBC News

[Bimat]

Next part of the story 
   

Government disagrees with move to kill penny

By BRIAN LILLEY, Parliamentary Bureau

OTTAWA - It's time for the penny to go the way of the farthing and the halfpenny, according to the Senate's finance committee, but the government isn't yet buying what the senators are selling.

"The penny has simply outlived its purpose," said Conservative Sen. Irving Gerstein.

"It is a piece of currency, quite frankly, that lacks currency. In fact, a penny can't even buy a penny anymore, and this is the heart of the issue. It costs far more than a cent to produce and distribute each penny."

Committee chair and Liberal Sen. Joseph Day agreed with the findings.

"We have concluded that removing the one-cent coin from circulation is long overdue," Day said. "We urge the government to undertake this initiative in a consultative and deliberate manner and with due regard for the interests of all stakeholders."

The Senate report calls for the penny to be removed from circulation and for the government to consult with the provinces and the retail industry on developing guidelines for rounding after-tax purchase prices to the nearest five cents.

The guidelines call for price rounding to only occur on cash purchases and not on credit card or debit payments.

"The jig is up for the lowly penny," said New Democrat MP Pat Martin. "All that's left is to call the health department and give it a proper burial."

Martin's celebrating appears to be premature.

"We thank the committee for its in-depth study of the issue," Finance Minister Jim Flaherty told QMI Agency. "We look forward to carefully reviewing the committee's findings and recommendations."

Meanwhile the prime minister's office told QMI the status quo will remain when it comes to Canadian coinage.

"We have no plans to eliminate the penny," said Dimitri Soudas, the prime minister's chief spokesman.

Previous attempts to kill the penny have never received popular support in the House of Commons.

Source: C News

[Bimat]

Few more related links:

Reuters: http://www.reuters.com/article/idUSN1429002020101214

CBC: http://www.cbc.ca/money/story/2010/05/04/f-penny-one-cent-coin.html

Aditya

[Bimat]

The CBC article is particularly interesting

Save the penny or leave the penny?

Australia and New Zealand get by without their one-cent coin

Last Updated: Tuesday, December 14, 2010 | 10:09 AM ET

By John Bowman, CBC News

Consider the lowly farthing: a quarter of a British penny, or 1/960 of a pound sterling. For centuries, this tiny denomination of coin circulated in Britain for day-to-day purchases.

In the 13th century, when it was first minted as a separate coin (and not just a silver penny cut into quarters), a farthing could buy a chicken or a pound of beef.

But by the 1950s, the coin could barely buy a gumball, and Britons had had enough.

In the May 4, 1953, edition of the Times of London, a letter from reader Leigh Vance appeared:

"Recently a bus conductor refused the eight farthings I offered him in exchange for a twopenny ticket. On another occasion the newspaper vendor to whom I gave six farthings in exchange for an evening paper became as abusive as if I had tried to slip him counterfeit coin."

He went on, "Either the farthing has a place in our coinage and is acceptable anywhere, or it is redundant and should be abolished."

Three years after the letter appeared, the last farthing was minted, and the coin was demonetized on Jan. 1, 1961. (Because it's so close in size and weight to the current British penny, the farthing sometimes still occasionally shows up in change in the penny's place.)

Canada's farthing

So what about our own farthing, the Canadian penny? Could you blame a bus driver for refusing to allow you to put a couple hundred of them into the fare box?

A growing number of economists and bankers are urging the Canadian government to give up the penny, as the U.K. gave up the farthing and, later, the halfpenny.



In April 2010, the standing Senate committee on national finance announced it would look at the costs and benefits of the penny, including whether it should recommend eliminating it.

"By some estimates, the production and use of the penny represents hundreds of millions of dollars every year in direct costs to taxpayers and lost productivity," Senator Irving Gerstein said in a statement, adding "there would be costs associated with eliminating the penny, as well."

Both Australia and New Zealand removed their one- and two-cent coins in the early 1990s. New Zealand went a step further in 2006 and demonetized the five-cent piece, and Australia appears ready to follow suit.

At the time of Vance's letter, the British farthing was legal tender up to one shilling — 12 pence or 1/20 of a pound. Legally, you could pass as many as 48 farthings, although Vance's letter suggests you were unlikely to succeed.

In Canada, the Currency Act says: "A payment in coins ... is a legal tender for no more than ... twenty-five cents if the denomination is one cent." No one is legally obligated to accept more than 25 pennies at a time.

In 1953, it was estimated that there were 600 million farthings in existence — about 12 for every Briton at the time.

By comparison, the Desjardins Group estimates that there were 20 billion Canadian pennies — 600 for every one of us — in pockets, jars, fountains and piggy banks in 2007.

According to a Royal Canadian Mint survey released in October 2007, 63 per cent of small retailers said they were in favour of getting rid of the penny, citing efficiency as their prime motivation.

By comparison, 42 per cent of consumers said they would support abolishing the penny, while 33 per cent said they would oppose the move. One-quarter of respondents said they were neutral.

Consumers who said Canada should get rid of the penny said they considered the coins an annoyance as well as dirty, smelly and germ ridden. People who wanted to keep the coin said prices would go up without the penny and said it's a part of our heritage.

Near the end of its circulation, it cost the Royal Mint a halfpenny to produce a farthing. Issuing a Canadian penny costs somewhere between 0.8 cents and a nickel, depending on whose numbers you believe.

But how does the farthing compare with the Canadian penny in terms of real money?

According to the website MeasuringWorth.com — which adjusts amounts of money from one year to another based on inflation, buying power and other economic factors — one farthing in 1960, the last year it was legal tender, was worth somewhere between two and five pence in 2010 money, or three to eight cents Canadian.

Inflation and the penny

Since Canada adopted the dollar as its currency in 1858, it has never issued a coin with a denomination lower than one cent.

Adjusted for inflation, one cent in 1870 (the earliest date such data is available) had the same purchasing power as 27 cents in 2005.

If 19th-century Canadians got along fine without half- or quarter-cent coins, do we need pennies or even nickels now?

In February 2007, the Desjardins Group released a statement saying the federal government should consider withdrawing the penny and, later, the nickel from circulation.

The company's main arguments against the penny centre on its dwindling purchasing power and the cost of keeping it in circulation, estimated to be about $130 million per year.
The Royal Canadian Mint produces about 816 million pennies annually. Desjardins argues that this huge production is needed because consumers receive pennies in change, but don't return them to circulation. They either hoard them or throw them away.

Desjardins suggests removing the penny and rounding cash transactions to the nearest five cents, a method called Swedish rounding.

Since the rounding is symmetrical, sellers would not be able to gain money by always rounding up, Desjardins says. It would be similar to the situation now, in which transactions are symmetrically rounded to the nearest cent. Over time, neither the buyer nor the seller benefits from the rounding.

Small change in Europe

But what about the world's newest currency, the euro? It's close in value to the U.S., Canadian, Australian and New Zealand dollars, and its coins go all the way down to one cent.

Didn't the economists at the European Union consider inflation and the cost of producing all that small change when setting the value of the euro and its coins?

In fact, two EU countries, Finland and the Netherlands, don't use the two lowest-value coins. They use Swedish rounding and mint only small runs of one-cent and two-cent euro coins for collectors.

The Finns and Dutch notwithstanding, there was a reason for including the small coins in the introduction of the euro, says Randall Hansen, a political science professor at the University of Toronto.

"There was a great fear across Europe that businesses would use the introduction of the euro as an excuse to round up their prices and that the result of that would be general inflation," Hansen said.

The rounding up of prices when merchants switched from the old currency to the euro seemed more likely if the one-cent and two-cent coins didn't exist, Hansen said.

However, the euro was a brand new currency. In theory, the EU could have set its value higher and adjusted the exchange rates from the old currencies accordingly.

If the euro had been set at, say, five U.S. dollars, a one-cent euro coin would have been worth a nickel and maybe the Finns and Dutch would keep using them.

But there were larger considerations than the small change in European pockets when it came to setting the value of the euro. The European Union wanted to create a currency that would compete on the global market with the U.S. dollar.

"It made a lot of sense for the value of the euro to be broadly proximate to that of the dollar," Hansen said.

The euro was introduced at a value of $1.18 US. It fell to a low of 82 cents US in October 2000, then bounced to a high of $1.59 US in July 2008.

"If you had a currency whose nominal value was five times that, you wouldn't have that obvious comparability with the U.S. dollar," Hansen said.

"That was much more important to policy makers than whether the Finnish or the Dutch were happy with small coins," he said.

Source: CBC

[chrisild]

Hope the Canadian government does not have the same irrational attitude, when it comes to the "penny", that its southern neighbor has. But judging from the fact that they have $1 and $2 coins instead of paper, there is some hope.

As for the value of the euro, well, maybe CBC should have asked an economist instead. There was a very simple reason why, almost twelve years ago, the euro started at roughly 1 dollar: Its external value was to be precisely the same that the old "European Currency Unit" (ECU) had. This way ECU-based amounts were converted on a simple 1-1 basis. The only thing that changed was the "weight" of the single national currencies in the "basket" ...

Christian

[Bimat]

Feds pound-foolish when it comes to the penny: NDP

BY BRYN WEESE, PARLIAMENTARY BUREAU

OTTAWA - The federal government spent millions last year making pennies that most Canadians don't even want.

Taxpayers actually forked over $7.3 million last year so the Royal Canadian Mint could produce 485.6 million pennies.

But Finance Minister Jim Flaherty seems reluctant to pull the plug on the lowly one-cent coin.

The mint released its 2010 annual report Monday, and boasted record revenues of $2.2 billion.

The penny, though, remains on the books and made up 61% of the coins the mint produced in 2010.

There are currently 30 billion Canadian pennies in circulation, but people hoard them -- 600 each on average -- and throw them in fountains, and they hide in-between sofa cushions, so the mint has to make about 500 million more every year.

What's worse, it costs 1.5 cents to put a penny into circulation.

Late last year, an Angus Reid poll found 55% of Canadians favoured scrapping the lowly penny -- 18% of whom said they'd even be "happy" to see it gone.

According to the Bank of Canada, the penny has lost 95% of its purchasing power since it was introduced in 1908.

And the Senate finance committee, which Flaherty tasked last year to study the fate of the one-cent coin, recommended in December the coin be scrapped because it's virtually worthless, costs more than it's worth to produce and wouldn't be missed by retailers or Canadians.

Even numismatists (coin collectors) said they would be OK with taking the penny out of circulation so long as it remained legal tender -- like the 50-cent piece and other non-circulatory coins -- so it would still have value to collectors.

But Flaherty has been afraid to pull the trigger on killing the one-cent coin, even though last year he conceded it can't survive forever.

"I think it's inevitable that eventually the smaller coin -- the penny -- would be eliminated," he said last year. "What we are seeing is hoarding of pennies, so the mint has to keep producing pennies at a cost of more than a penny.

"At some point, this will have to end."

His spokesmen, though, maintain Flaherty is still "reviewing" the Senate recommendations and won't say when the minister might finish his review.

"The government reviews the coinage system periodically to ensure that the needs of Canadians are being met," Mary Ann Dewey-Plante, a spokesman for Flaherty, said Monday. "We're still continuing to review the Senate report."

But he's been reviewing the report, which calls for the penny to be scrapped by year's end, for seven months now and NDP MP Pat Martin wonders why the Flaherty can't see the light.

"I think he's missing the boat on this one. He's studying the wrong end of the currency spectrum. He's tinkering with $100 bills, when he should be picking the low-hanging fruit and getting rid of the penny," Martin said Monday. "There's money to be saved and efficiencies to be gained, and it's staring him right in the face and sitting right under his nose."

Martin, a longtime critic of the penny, still holds out hope the one-cent coin is on death's door.

"This thing seems to have nine lives, but I still believe that reason and logic will prevail in the end, and that we'll be able to rid ourselves of this expensive nuisance," he said. "We're all supposed to be tightening our belts and pulling out all the stops to slay the deficit. This is one of the lowest hanging fruit.

"This one is a no-brainer. Eliminate the penny and people will even thank you for it, and we'll put that $10 million to much better use."

And experts agree no one should worry about prices jumping up if the penny were scrapped because rounding up or down to the nearest nickel would only apply at the final sale, which could include many items, and also would only apply to cash purchases. The experience elsewhere is that prices don't change at all.

Credit card and debit transactions would not be rounded out and would continue to use one-cent increments because pennies don't physically exist now in credit or debit transactions anyway.

Sweden scrapped its two lowest denomination coins in the early 1970s, and New Zealand cut out its one- and two-cent coins in 1989 and scrapped its nickel in 2006.

Australia dropped its one- and two-cent coins from circulation in 1992, and is currently considering dropping its nickel.

According to the mint's annual report released Monday, it made $2.2 billion in revenue in 2010 (up from $2 billion in 2009), and put $238.7 million (up from 209.9 million in 2009) into government coffers. It produced 792 million coins in 2009, of which 61% (485.6 million) were pennies.

Source: Toronto Sun