Canada Eliminates Penny Costing Penny-and-a-Half to Make

Canada will withdraw the penny from circulation this year, saving taxpayers about C$11 million ($11 million) annually and forcing retailers to round prices to the nearest nickel, the government announced in its budget today.

The Royal Canadian Mint, which has produced 35 billion pennies since it began production in 1908, will cease distribution this fall due to the coin’s low purchasing power. Production and handling cost for the one-cent coin are a C$150-million drag on the economy, according to a 2006 study by Desjardins, a Levis, Quebec-based financial institution.

“Pennies take up too much space on our dressers at home,” Finance Minister Jim Flaherty said in the text of his budget speech in Ottawa. “They take up far too much time for small businesses trying to grow and create jobs.”

Business groups welcomed the move, which follows other countries such as Australia, Brazil and Sweden, and economists said it would have little impact on inflation.

“If there’s a rounding up, you’d see a rounding down somewhere else,” said Craig Wright, chief economist at Royal Bank of Canada.

The savings to financial institutions alone may be about C$20-million a year, as banks reduce transportation, storage and handling costs, the study estimated.

It costs the government 1.6 cents to produce one penny, which has been made of copper-plated zinc and copper-plated steel since 1997.

Stuck Down the Sofa

“It’s a cost to the government that can be easily saved, given that most pennies get stuck down the back of the sofa or under the streetcar,” said David Tulk, chief Canada macroeconomic strategist at TD Securities Inc., a unit of Toronto-Dominion Bank.

The penny, with two maple leafs on one side and Queen Elizabeth II on the other, can continue to be used in payments. As they are gradually withdrawn from circulation, price rounding on cash transactions will be required, the government said.

The calculation of the federal goods and services tax and provincial sales taxes will continue to be calculated to the penny and added to the price, with rounding only taking place on the total payment.

Non-cash payments on checks and credit cards will continue to be rounded to the nearest cent.

“If businesses round cash transactions to the nearest five-cent increment, any gains or losses relating to cash transactions (a maximum of two cents per transaction) will balance out over time,” the government said in its budget documents.

Increase Efficiency

Retailers and other businesses can continue to price goods and services in one-cent increments and there will be no need to reprogram cash registers, according to the government.

Catherine Swift, president and chief executive officer of the Canadian Federation of Independent Business, said the move will increase efficiency.

“It has been a long time coming,” she said. “It’s been a real pain more than anything else. We’ve actually polled our members on this and they’re supportive.”

The mint used 1.5 million kilograms of steel, 70,000 kilograms of copper and 23,000 kilograms of nickel last year to make pennies at its facility in Winnipeg, Manitoba. It put 1.3 billion coins in circulation in 2011, half of which were freshly minted and half made from recycled materials.