Penny's birthday may be its funeral

By Kayle Hatt

This year marks the 150th anniversary of the first Canadian one-cent piece (the very collectible 1858 large cent) and the 100th anniversary of the first coin minted in Canada, but it may also mark the end of the so-called penny's production.

As reported in the last issue of CCN, on April 2 New Democrat MP Pat Martin (Winnipeg Centre) formally introduced a private member's bill in parliament that would eliminate the copper-coloured coin from circulation.

Under his proposal, commerce would still be conducted in one-cent intervals, but the final amount owing in any transaction would be rounded to the nearest nickel. Something which has already been done in Australia and New Zealand, both of whom eliminated their penny. In the case of New Zealand, they eliminated everything below 10 cents.

"To put it simply, the penny has virtually no commercial value, it barely circulates, and it costs more to produce than it's worth," Martin said.

The idea isn't really new, in 1993 and 1996 bills to eliminate the penny were introduced in the Canadian Parliament, while the United States Congress has voted on the issue six times. However, Martin says, "The business case for abolishing the penny is overwhelming now."

After 150 years of circulation, the penny and its low face value might not be worth the trouble. For starters, the penny now costs more to produce, distribute, and store, than it is worth (numismatists will note this is known as negative seigniorage). In 2003, two economists from Wilfred Laurier University calculated that, based on the Royal Canadian Mint's (RCM) own figures, it costs around four cents to produce, store and transport a single penny.

There have been other estimates and the RCM has worked to reduce costs but last year a report by the Desjardins Group, a major Canadian credit union, determined that the cost was not likely to be less than a cent and a half.

More importantly, economists say that the penny has external costs forced on business and individuals because we are forced to carry them around, count them, roll them and because there is an economic cost of all the pennies that fall between couch cushions, never to be seen again. That cost is estimated at $150 million.

Figures released in May 2007 show that we produced 2.2 billion of the copper-toned coins in 2006, accounting for more than half of the RCM's domestic production. Experts say there is an 'artificial demand' for pennies because so many are removed from circulation to sit on sidewalks or in tin cans along with the odd button.

"The support for this idea is growing too," Martin said. "A study prepared for the Royal Canadian Mint in September 2007 indicated that small retailers, big retailers and public opinion all agree with this initiative."

The study in question revealed that:

• 63 per cent of small retailers supported removing the penny, while only 19 were opposed.
• Consumers were split more evenly with 42 per cent in favour and 33 per cent opposed but almost a quarter of those surveyed were "neutral."
• 93 per cent of businesses claimed they will allow a purchase even if a customer is "one or two pennies short" and 69 per cent said there would be nothing different to the way they run the business if pennies were eliminated.
• 64 per cent of people surveyed said they "wouldn't go down the back of the sofa if [they] dropped a penny while watching TV."

While many people may be prepared to accept the elimination of the penny, the Desjardins Group 'upped the ante,' in April, by releasing a revised version of their 2007 study.

The new report still calls for the elimination of the penny, but it also says we should follow that action a few years later by discontinuing the 5-cent piece as well. We need to adopt a 20-cent coin to replace the 25-cent piece, re-popularize the use of half dollars and create a $5 coin.

This would take place over the next 20 years and the end result would be very similar to the process currently in place in New Zealand with 10-, 20- and 50-cent coins as well as our homegrown $1 and $2 coins with the new $5 coin.

The report adeptly notes that for these coins to be effective in circulation, they would have to be redesigned to be smaller and lighter. After all, today's heavy and oversized 50-cent piece is essentially a coin for collectors, rarely circulated in part because of its size and weight.

At this point it is doubtful that the Desjardins Group's recommendations will be acted on, but the penny's fate may be sealed.

The parliamentary finance committee recently decided to study Martin's bill and the issue of eliminating the penny, meaning any collector who has been assembling a complete one-cent set could be finished with the addition of this year's cent.

May 13 to May 26, 2008 issue of Canadian Coin News