Penny-wise or pound-foolish?

Image of a pile of pennies The Royal Canadian Mint began the long process of removing the penny from the marketplace this month when it officially stopped distributing the coin to financial institutions. Though the penny will remain legal tender indefinitely, it will be left to the discretion of individual business whether or not they choose to continue accepting the coins. The currency milestone is quite likely anti-climatic, however, given there are roughly 35-billion pennies still in circulation; about 82-million kilograms of the steel, nickel and copper plated tender. The copper currency's directional journey from pockets, purses, pouches and piggy-banks, via businesses and banks, will not end at the Royal Canadian Mint. Once received, the Mint will process the coins and ship them off to a foundry where they will be melted-down and their metals extracted and recycled.

Most media reports have suggested that as the coins are withdrawn from circulation, cash transactions will begin to be rounded off to the nearest five cents in a "fair and transparent manner". Accordingly, it has been suggested that if the "purchase prices end in .01 or .02, or .06 or .07, they will typically be rounded down to the nearest .00 or .05 [whereas if the prices] end in .03 or .04, or .08 or .09 ... store owners will typically round up]". That said, however, there are no government-imposed rules or policing on pricing and it has been left to the discretion of individual store owners to establish their own policy.

The rounding practice is only pertinent with respect to cash transactions and inconsequential for all electronic exchanges. As the vast majority of my purchases are electronic, the elimination of the penny will have little overall affect on my purchases. What impact, I wondered, would it have upon those few purchases for which I still use the coin of the realm? I kept a keen eye on my transactions over the past few weeks to assess the impact:

My transit station coffee stop is unaffected. Mercifully, Tim Horton's had the foresight, presumably for efficiency, to set their prices such that their "tax-in" price needs no rounding. I have no idea what a "before-tax" coffee costs at Timmy's... but I can rest assured that when I slap $1.40, $1.60, or $1.80 on the counter, I can walk away with a small, medium or large coffee respectively. That afternoon can of Nestea, however, that I generally grab from the confectionary just down from the Library has just increased to $1.15 from $1.13. Given that I can walk an extra 30 yards and get the exact same product from a vending machine for a loonie it's going to be hard rationalizing the extra fifteen cents (15%) for the human interaction. A first-class 61 cent postage stamp, actually 71 cents with tax, is now $0.70. I know, it sounds trivial, but when I consider that each time I purchase a single postage stamp three bureaucracies have their hands in my pockets, I can't help but wonder who gets screwed out of the penny... Canada Post? The Feds on the GST? Or the Province on the HST? It's probably best not to ask such poignant questions officially, lest some bureaucrat call for a multi-million dollar Royal Commission to play Where's Waldo in an attempt to find the missing penny. Finally, I discovered that the official policy of the Royal Bank and Giant Tiger is to always round transactions, whether accepting payment or dispensing change, in the favour of the customer.

The move to eliminate the penny is, according to the federal government, a prudent fiscal decision. In the simplest of terms, the government's posits that "production cost came to exceed its monetary value: it cost 1.6 cents to make each penny". I can't help but scratch my head at the skewed logic every time bureaucrats and politicians rely on Vegas math. Consider this... if it costs 1.6 cents to make a brass button, every time you make a brass button you've got 1.6 cents less than when you started. Now... let's make pennies instead of brass buttons. If it costs 1.6 cents to make a penny, every time I make a penny I spend 1.6 cents but I also get one penny back by virtue of the production process itself. The net cost, therefore, of producing that penny is really only .6 cents. Duh!

What's more interesting than the cost of producing pennies, however, is the cost of removing them from circulation. The Government's own cost-analysis study recognizes that "redeeming the mountain of circulating pennies ... will cost taxpayers about $7.3 million a year." Was a cost-analysis study absolutely necessary? If there are 35-billion pennies in circulation, each of which is worth $0.01, it's going to cost you $350 million to buy them back. "Saaaaaay," he says with an eyebrow slightly raised, "if it only cost .6 cents a piece to make 35-billion pennies and put them into circulation ($210 million), why would you buy them back at 1 cent a piece ($350 million) and take them out of circulation?"

Somehow I think this is going to cost taxpayers a pretty penny.

Submitted by Jeff Dubois, 22 February 2013