Canadian penny’s demise: What consumers need to know

A penny for your thoughts; actually, make it a nickel. Long-term, it might be a debit for your thoughts.

As part of Ottawa's 2012 federal budget announcement last week, Canada's one-cent coin will soon go the way of platform shoes, rotary dial telephones, and VHS tapes. A victim of inflation, the cost of minting a penny has risen to 1.6 cents or C$11 million a year. That simply won't do in our austerity-minded times.

Though it carries much sentimental value, the reasons behind eliminating the penny are worth much more. Perhaps the only major casualty of the penny's demise will be the English language now that several expressions will be rendered meaningless. Production and handling costs for the penny are a $150 million drag on our economy, reportedly.

By removing its lowest denomination coin, Canada if following in the footsteps of other countries that have successfully done so.

"In other parts of the world, the penny is gone," says Bruce Cran, president of the Consumers' Association of Canada (CAC) in Vancouver.

"Australia and New Zealand got rid of the penny about 15 years ago and it worked out very well for them. The Europeans are now thinking about it. In fact, New Zealand and Australia are already engaged in removing the five-cent coin. We believe it's a move in the right direction to simplify purchases for consumers and that it'll have very little effect on the market."

The CAC has been pushing for the penny's extinction for more than a decade. The not-for-profit organization, founded in 1947, aims to inform and educate consumers on marketplace issues and to work with government and industry to proactively solve marketplace problems.

Will the penny drop affect consumer prices?

"From a consumer's point of view, we're all very much in favour of tying this matter up and getting rid of this ancient coin which truly has no value at all," he says. "I have no doubt retailers will probably lean towards raising (prices) a little but there won't be a lot of money involved and it's not something that will effect consumers.

Note to consumers: If you have a stockpile of copper coins you can still spend them.

"From a (production) cost perspective (of the penny) it makes sense. I know there's some concern about how this will impact pricing and that it could lead to an outburst of inflation," remarks Derek Burleton, deputy chief economist, TD Economics in Toronto. "In my view, you'll probably see some prices rounded up and others rounded down. I don't see this as being a major impact on the consumer price index or generating a boosting impact."

As mentioned by the CAC's Cran, Australia removed its one- and two-cent coins from circulation in 1992. Now there's a move afoot Down Under to remove five-cent coins from circulation.

"That suggests politically it wasn't too big a factor," Burleton continues. "It'll boil down to the nature of the market. I do see some retailers using it as a way that they're actually rounding down so it'll come down to competitiveness in various markets."

One step closer to cashless society

Cran opines now that the penny is on the chopping block, it charts a course for Canada to become a cashless society.

"We're heading for an electronic, cashless society, there's not much doubt about that. This is one of the first steps related to achieving the goal related to that issue," he adds. "Cash is a very expensive thing to handle, it's the most expensive way of treating money. There's dangers attached to it that don't apply to the electronic structure.

"In Europe today you can't even write a cheque. There's very few written in Canada now and it won't be long now before cheques are gone."

Perhaps the penny's demise does indicate a very gradual move to a cash-free existence but we're likely decades away from getting there.

"I can see it as being a step but it's on a rather long path," TD's Burleton adds. "We're quite a ways away from removing cash from the system completely."