“Free your pennies from their prisons,” said Canadian Finance Minister Jim Flaherty last week. This is his call to get Canadians’ coins from their piggybanks to the market place, where they can finally be retired. That is, the government’s federal budget for 2012 left the penny out of the equation, and the Royal Canadian Mint will no longer produce them. What kind of impact may this have on the economy, and is this a good thing for Canada ?
Getting rid of the smallest currency has been done before, so Canada knows what they are getting into. In 1956, the very last British “farthing” was minted, because people were no longer accepting them as a currency. The farthing was worth a quarter of a British penny, 1/960 the value of a pound sterling. Though the farthing can still sometimes be seen in Britain today – they occasionally pop up among change, as its physical characteristics are very similar to the penny – but it was officially demonetized 41 years ago. Britain would also later go on to phase the “halfpenny” out of existence.
Canada’s Currency Act states that 25 cents is the limit for which someone is legally obligated to accept payment. So if a Canadian wants to buy something for 30 cents in pennies, they can be legally refused unless that last 5 cents is paid for with a Canadian nickel. From a survey done in 2007, 42% of Canadian respondents said they support abolishing the penny, 33% oppose it, and the rest were neutral. As for small retailers, two thirds (63%) were for dropping the penny, saying that it would be more efficient that way.
Usually, fiat money – currency that does not have intrinsic worth, unlike a coin made of gold, for example – is economically beneficial for governments. But a comparison suggests that Canada may not have benefited much from producing the penny. If you compare the farthing’s production costs, the Royal Mint spent a halfpenny on producing a farthing near the end of its circulation (twice the amount). Depending on whom you ask, a Canadian penny (1 cent) costs between 0.8 cents and 5 cents to produce (up to five times the amount). Most people would agree that this doesn’t seem like a worthwhile endeavour.
Then why has the European Union’s relatively new currency – the euro – included denominations that are equivalent to the penny? The reasons they allowed the introductions of such small currency is because they were worried that businesses in Europe would round up their prices which would cause a general inflation. I’m not convinced, but I’m also no expert, so don’t take my word for it. The fact of the matter is that not everyone in the European Union even accepts these coins. The Netherlands and Finland don’t use the two lowest-value coins at all. They only mint small amounts of them for collectors.
Australia and New Zealand have also gotten rid of their pennies already, and they seem to be better for it. In fact, while Canada ’s and Australia ’s smallest coins are worth five cents, New Zealand has already taken it a step further and stopped minting the five cent coins as well; their smallest currency is worth ten cents. Sweden and Brazil have also abolished their lowest-value coins in the last decade. It sure seems as though people don’t want to pinch pennies anymore.
Now the U.S. is interested in following Canada ’s suit, and Australia and Canada may even soon follow New Zealand in making ten cents the lowest-value coin. And who knows, perhaps the value of a penny will change? After all, some Australian pennies are now so rare that they’re even considered an investment.
It’s probably a good thing that the penny is being demolished. There will be less coins to lose in sofas, and there should be fewer people painfully finding the exact change in long lines at stores. This could also be a welcome change here in Japan, where cash is much more common than credit cards.
So it’s probably all for the best. But that’s just my two cents. Oh, wait a second…