In recent years, there has been a trend in many countries to get rid of smaller money denominations. One-cent pieces are becoming increasingly rare, and with the latest move by Canada, they’re rarer still. Canada just released it’s budget for the coming fiscal year and announced that the Royal Canadian Mint will stop producing pennies come autumn.
According to the Canadian government, it costs 1.6 cents to produce the penny. In the United States, the situation is similar. It costs more than a penny to make a penny. The Canadian government expects to save $11 million a year by halting production on the penny, and the financial institution Desjardins reported, in a 2006 study, that there is a $150 million drag on the economy from pennies, once the cost of transporting them, counting them, and dealing with other hassles is figured in.
The switch is expected to be relatively painless, however. Pennies will still be accepted as legal tender in Canada, so those who still have pennies can use them. And, of course, the move doesn’t change the nature of credit card transactions, or electronic transactions. The main difference is that the government won’t be making pennies, and they will no longer be given to banks for general distribution.
Should the United States Get Rid of Pennies?
As Canada prepares to shed the penny, the natural question is this: Should the U.S. get rid of pennies, too? According to information from the U.S. Mint, it costs 2.41 cents to produce a U.S. penny, thanks to the cost of the materials involved. In 2011, there was a loss of $60,200,000 to create the penny. Just over $60 million seems like a drop in the bucket when compared to the total budget in the United States, but there is still quite a bit that can be done with that much money.
On top of that, there is the argument that the penny has outlived its usefulness. Inflation has rendered the ability to count one cent at a time almost laughable. Plus, when was the last time you pulled out cash to pay for something? Do you even have a decent amount of cash in your wallet? Most of us use debit or credit to make purchases, and technology has made online shopping popular and easy. And, once digital wallets catch on, it might not even be necessary to carry plastic cards around. The idea of a one-cent piece seems outmoded in a world where financial transactions are largely handled with the help of ones and zeroes.
Of course, once you go down that road, it makes sense to consider whether or not you even need a five-cent piece. Many countries that had two-cent pieces have eliminated them as well as the one-cent pieces, and it appears that the five-cent piece could be the next to go. In New Zealand, the lowest coin denomination is the 10-cent piece, and they seem to be doing just fine. Indeed, some wonder if coins are even necessary at this point.
What do you think? Should the penny become extinct? What about other coins?
Tom Drake writes for Financial Highway and MapleMoney. Whenever he’s not working on his online endeavors, he’s either doing his “real job” as a financial analyst or spending time with his two boys.