As part of its new budget, Canada will get rid of its penny, saving taxpayers more than C$11 million, according to the Royal Bank of Canada. Since production in 1908, the bank has produced more than 35 billion pennies, but circulation will end sometime in 2012.
As part of cost cutting measures, Canada will save at least C$150 million in production and handling costs once the penny is completely abolished. It costs the Canadian government C1.6 cents to mint a penny, a coin made from copper-plated zinc and copper-plated steel. However, it won't only be the government that saves money.
Saving pennies in a piggy bank may be fun for children, but for banks, the transportation, handling and storage of coins costs about C$20 million each year according to Canadian officials, a cost that has to be passed on to customers in the form of fees. Eliminating the penny saves a portion of the costs associated with processing coins.
Some argue that cash registers will have to be reprogrammed to accommodate the switch, but since the penny will remain in circulation until most pennies are out of circulation and taxes will continue to be calculated to the penny, cash registers and other business machines will operate as they always have.
Catherine Swift, president and chief executive officer of the Canadian Federation of Independent Business, says that businesses welcome the change, since fewer coins will eventually make their business more efficient.
Other Countries Have Done It
Canada is one of many countries that have ended the minting of their lowest-value coins. In 1992, Australia eliminated their one- and two-cent coins from circulation. In January 2008, Israel eliminated their five agorot coin. These countries join at least 15 other countries including Great Britain, The Philippines, Hong Kong, the Netherlands, Singapore and Mexico that have all eliminated at least one of their coins to lower government costs.
Countries like Russia, Japan, Ukraine, Ecuador and much of the eurozone still use coins of equal or lesser value than the penny.
When Will the United States Do It?
The most notable hold out is the United States. In 2006, The Legal Tender Modernization Act was introduced by Representative Jim Kolbe. The bill aimed to require that all transactions be rounded to the nearest 5 cents but this legislation failed to pass Congress leaving the U.S. with the same problem as Canada.
Producing the penny in the U.S. costs a lot more than in Canada, according to CNN. To produce a U.S. penny, the U.S. Mint pays 2.4 cents per penny, and that's up from 1.5 cents in 2006. That, along with the production of the nickel, costs the U.S. government more than $100 billion each year, and if it can't be retired, President Obama wants the cost reduced. That, according to officials, is difficult, because the administrative costs of producing a penny account for nearly half a cent, leaving very little room to cover the cost of raw materials.
The Bottom Line
Although Canada and many other countries have found a way to eliminate the penny from circulation, the U.S. still loves its coins and although it would represent a $100 million dollar budget reduction, they look poised to continue minting the coins for quite a long time.
Canada joins the ranks of Mexico, Great Britain and other countries that will see a significant cost savings by forcing people to round up or down to the nearest five cents, but as credit cards and other cashless payment methods continue to evolve, it may not be long until all currency is eliminated.