The Peril Of The Penny

The penny is in peril after the Senate finance committee said it will recommend Tuesday that Canada get rid of the one cent coin.

The committee found that over a century of inflation, the penny, which actually costs 1.5 cents to produce, has lost its value and usefulness.

“Since the Canadian penny was first introduced in 1908, it has lost 95% of its purchasing power.  What used to cost a penny, now costs 20 cents,” explained Sen. Richard Neufeld, Standing Committee On National Finance.

If the government approves the move, production will stop as soon as possible. Circulation would cease the following year, and you’ll have another year after that to cash them in.

There are currently 20 billion pennies in circulation and it seems more and more Canadians are holding onto the coins – The Royal Canadian Mint has dramatically increased its production of the penny in recent years because Canadians are hoarding them.

With no penny, prices would be rounded up to the nearest five cents.

“The concern is will (this) lead to higher prices?  And the view on that…is that some prices may go up but others probably will fall, it depends on conditions of the market, how much competition there is.  On the whole, it will probably balance out,” suggested Derek Burlton, TD Economics.

Canada wouldn’t be the first economy to adopt a penny-free economy. Australia and New Zealand go without the one cent coin. Finance Minister Jim Flaherty has reportedly been studying their systems.

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