When the federal government announced that it cost more to make a penny than to keep a penny, they said that the penny would no longer be in circulation come this fall. But now after an outcry from retailers, that date has been pushed back to February 4, 2013.
When Finance Minister Jim Flaherty took his $56,000 photo op in May, where he struck the last penny to be coined, retailers showed great concern that it simply wasn’t enough time for them to make the switch to a penny-less system. How were they going to overhaul their entire cash systems, not to mention pricing systems, in such a short period of time? And right before the holiday season? They were valid concerns, and ones that the Finance Department took seriously. The only question was, how far back should the penny’s end date be pushed back to? Or if at all?
The penny does need to come to an end. With a cost of 1.6 cents each to make a coin that only costs 1 cent, it really makes no sense to continue putting money into something that’s costing us $11 million a year; with an additional $150 million yearly cost of total production and handling costs. Of course, there’s always the bigger question of what taking the penny out of circulation would cost the country; and if it’s worth it at all.
On that matter it’s a bigger issue than just pulling the penny and leaving retailers and consumers to deal with the minor costs that it could cost them. It involves, for beginners, that photo of Jim Flaherty striking the last penny to be minted that cost $56,000. It involves possibly the loss of minting jobs, as there are simply fewer coins to be minted. And of course, the cost of simply collecting all those pennies, figuring out what to do with them, and then using resources to put that storage/melting/recycling plan into action. The impact on the economy as a whole is a concern that’s been raised, and it’s an even bigger one that retailers needing to switch over their systems; or consumers needing to pay a few pennies more for each purchase. Although these concerns too, of course come into play.
There are always some downsides to everything, and the case is no different with taking the penny out of circulation. Of course there will be costs associated with it, and definitely some inconvenience on the part of those who deal with the penny every day – at least when the penny is first phased out. But other countries including Australia and New Zealand have already ditched their penny and it’s had little to no affect on their economy as a whole. The result has been so envious in fact, that now Europe is also considering getting rid of their one-cent coin.
With the economy question out of the way then, what impact will the elimination of the penny have on retailers and consumers?
No one except retailers are paying too much attention to the fact that they could potentially have to overhaul their entire cash and pricing systems. After all, business is business and it’s done every day. But Mr. Flaherty does recognize that giving them only a few months time to do so could be asking a little too much – especially with back to school shopping and then the holiday rush just about to begin. That’s why on Monday he announced that the “early fall” date that was originally slated for the death of the penny, has been pushed back to February 4, 2013.
In the press release the Finance Minister stated that, “Setting a clear transition date will allow consumers, businesses, charities and financial institutions to plan accordingly in the lead-up to February. We want to thank all Canadians for sharing their views with us, especially as it relates to this transition.” It continued on to say that after consulting with those in the retail and financial sectors, a date that came after the holidays would be most beneficial to all. Also, it stated that it would allow one last “penny drive” for all fundraising events that wanted to include it. You can view the full press release here.
But the question still remains: where are consumers left in all of it? The biggest fear is that everything now marked at $0.81 or $0.98 will automatically jump up to the nearest $0.05 mark – something that would quickly add up for consumers and could have them leaving potentially thousands more at the till over the course of a year. However, that’s most likely not going to happen.
What is going to likely happen is best shown on this chart, provided by the Toronto Sun, made when the old end date for the penny was still in place. Still, the end result to consumers is still the same. While some prices will move up a couple of cents in order to make proper denomination, others are going to move down; creating what’s so sought after in the economy – balance.
Of course, the even bigger question looming above all others is: is this going to lead us to a cashless society? And the most honest answer is, most likely it’s one of the very first steps. Cash is simply too expensive to make, too costly to keep, and doesn’t last as long as a small little piece of plastic such as a debit card does. Does the death of the penny mean that next year it will be the nickel, and in 2014 the dime? It’s likely not going to happen that fast.
“We’re heading for an electronic, cashless society, there’s not much doubt about that,” says Derek Burleton, deputy chief economist at TD Economics in Toronto. “This is one of the first steps related to achieving the goal related to that issue. Cash is a very expensive thing to handle, it’s the most expensive way of treating money. I can see it as being a step, but it’s on a rather long path. We’re quite a aways away from removing cash from the system completely.”