Unveiling their 2012 federal budget yesterday, Canada’s government announced their plans to eliminate the penny from the country’s currency landscape.
The government said the one-cent coin costs too much produce and was described as “a burden to the economy” in a pamphlet released on Thursday.
“The government estimates it loses $11 million a year producing and distributing the penny, and that doesn’t include the costs and frustrations for businesses and consumers that use them in transactions,” the CBC reported. “A 2008 report by Quebec-based bank Desjardins estimated the penny’s existence cost Canada’s economy about $150 million in 2006. Canada’s big banks alone handle more than nine billion pennies a year, which costs them $20 million annually to process.”
The government said the penny has decreased to about 1/20th of its original purchasing power, but a report issued by the Bank of Canada in 2005 said the elimination of the penny wouldn’t lead to any inflation.
The one-cent coin will still hold their value, and consumers can still use the currency in transactions though under the new “penny plan” prices across the country will be rounded up or down to the nearest five-cent increment.
New pennies, however, will not be produced by the Mint so as coins get returned to financial institutions across the country, they will be recycled into their base materials leading to an eventual phase-out of the one-cent coin.
The Mint typically produces 7,000 tonnes worth of pennies each year, the CBC said.
This announcement comes in the same week the new $50 polymer bill was introduced into circulation. By the end of 2013, all Canadian denominations will be polymer notes. The new $100 bill was introduced in November.