By Marvin Ryder, Special to the News
Mark Twain wrote “News of my death has been greatly exaggerated.” So, too, are there great exaggerations about the demise of the penny.
Canada has had a decimal currency for nearly 150 years. A Canadian dollar is made up of 100 cents. That is not changing. The penny is a coin or legal tender equal in value to one Canadian cent.
On Feb. 4, the Canadian mint will stop distributing pennies to financial å. åof these coins to give to retailers. For now, the penny remains legal tender and you can still pay bills with them, but once your personal supply of pennies is gone, you will stop receiving them in your change.
Why is this complicated? In electronic form, the “cent” will still exist after Feb. 4. Your hydro, gas, credit card, and tax bills will still show amounts quoted to the last cent. You will still use cents on cheques you write. If you like to pay your bills with a credit or debit card, you will still pay down to the final cent. In that sense, little is changing.
The only change will be for cash transactions. In retail today, only one-in-three transactions use cash; for the remainder, people use electronic transactions such as credit or debit cards. After Feb., if you make a purchase at a store and the total (with HST included) comes to $6.17, the cash price will be rounded down. Pay by debit and you will pay $6.17; pay by cash and you will pay $6.15. Of course, if the total came to $8.33, the cash price will be rounded up. Pay by credit card and you will pay $8.33; pay by cash and you will pay $8.35.
The major reason for the change can be blamed on inflation. A penny once had value. You could buy products for that amount. Today, it is impossible to find products priced at one or five or even ten cents. Anyone remember penny candy? Nickel soda pop? Ten cent phone calls?
At the other extreme, the mint is making $50 and $100 bills more acceptable legal tender through new safety features. Most shoppers cannot buy one bag of groceries with just a $20 bill. As one dies, the popularity of other legal tender rises.
For the mint, it costs 1.6 cents to make a coin valued at a penny. That does not make sense when the coin has no use in our economic system.
Many stores and restaurants cannot be bothered dealing with pennies and have been routinely rounding prices to the nearest nickel for several years. As an alternative, the penny dish at a retail store has given shoppers “free” pennies for their cash transactions for nearly a decade.
The savings from withdrawing the penny from circulation are relatively minor – on the order of $5 to $12 million per year. The major argument is one of convenience: why keep producing something people don’t use?
There is nostalgia around $1 and $2 bills, but we survived as these were replaced with coins. Britain once produced half-pennies but these died in 1984. Canada is not the first country to kill the smallest coin in its system. Other countries have reported no significant economic turmoil. My guess: the demise of the penny will not be noticed.
Marvin Ryder is Assistant Professor, Marketing and Entrepreneurship at the DeGroote School of Business at McMaster University.