Canada to kill the penny soon !
Their gov't always was more sensible....
Penny Wise, or 2.4 Cents Foolish?
By JEFF SOMMER
Published: April 7, 2012
THE news from north of the border is both trivial and unsettling: they won’t be making shiny new pennies in
Canada anymore.
Enlarge This Image
Photo illustration by The New York Times
Related in Opinion
The government in Ottawa has made this decision after years of deliberation, for reasons that would seem to apply equally well in the United States. “Pennies take up too much space on our dressers at home,” Jim Flaherty, the Canadian finance minister, said in a speech last month. A persuasive government brochure put it this way: “We often store them in jars, throw them away in water fountains, or refuse them as change.”
Pennies cost more to produce than they are worth. Yet because of inflation, they are worth so little that many Canadians don’t bother to use them at all.
It’s not very different in New York City. In January,
when Starbucks raised the price of a 12-ounce cup of coffee in Manhattan to $2.01, with taxes, many coffee drinkers were appalled — not so much by the cost as by the indignity of needing to fish for pennies. In the intervening weeks, I’ve given up on coins at Starbucks and begun paying for my morning joe electronically.
Do we really need pennies?
The Canadian government doesn’t think so. By the fall, it plans to stop minting them and stop distributing them through banks. It won’t actually ban them, though. Some people have grown so attached to pennies — a penny saved is a penny earned, after all — that they may want to keep using them indefinitely, and they can,
the Canadian government says.
But those who can bear to part with their pennies are being encouraged to bring them to banks for eventual melting or to donate them to charities — which will presumably bring them in for melting. Electronic transactions will continue to include cents, while retail sales will be rounded up or down.
Inflation is sometimes cited as a threat whenever small coins are phased out. A $2.01 cup of coffee should be rounded down to $2, while $2.03 should become $2.05, for example, but retailers in the real world might raise prices more than lower them. That could cause a small, one-time inflation burst, says François Velde, an expert on the history of small change.
“But in a competitive market, you might well see price decreases,” says Mr. Velde, a senior economist at the Federal Reserve Bank of Chicago who is working this year at the Bank of France. “In a place like New York, a 99-cent price of pizza might go down to 95 cents rather than $1 to avoid crossing that higher price threshold.” Over all and over time, there should be no net price effect, he says.
He finds the argument for phasing out the penny to be at least as strong in the United States as in Canada because the two nations’ small coins, political history and socioeconomic culture have so much in common. “That’s what makes the Canadian decision a little unsettling,” he says. “Their pennies even look a lot like ours.”
In the United States, the mint says, each zinc and copper coin costs 2.41 cents to produce and distribute. It costs 1.6 Canadian cents to make a penny at the mint in Winnipeg, according to Canadian government figures. (A Canadian cent is worth about 0.99 cents at the current exchange rate.) “From the standpoint of economics, that’s just a total waste of money,” Mr. Velde says.
Pennies may not be big money, even if you add them together. But we are paying a cost for the privilege of squirreling them away in drawers and on dressers. The United States government — that is, taxpayers — lost $60.2 million on the production and distribution of pennies in the 2011 fiscal year, the mint’s budget shows, and the losses have been mounting: $27.4 million in 2010, and $19.8 million in 2009.
A number of countries, including Australia, New Zealand, Brazil, Finland, the Netherlands, Norway, Sweden, Switzerland and Britain, have already dropped their lowest-denominated coins, without dire consequences.
WHAT is to be done in the United States? The mint defers to Congress, and Congress hasn’t told it to abolish the penny. Lawmakers have directed the mint to study ways to make small coins more cheaply. Mike White, a spokesman for the mint, says a report will be completed in December — which happens to be after the presidential election.
President Obama, a former senator from Illinois, has observed that people from that state are partial to the penny, which has depicted Abraham Lincoln since 1909. But after the Canadian announcement,
The Chicago Tribune last week editorialized that, sentiment aside, it was “time to kill the cent.”
At the very least, a change in the composition of the American penny seems likely.
In 1982, Congress authorized the Treasury to make such a change, and it did. Before then, pennies were 95 percent copper and 5 percent zinc, Mr. White says. Pennies manufactured since have been copper-plated zinc, with zinc making up 97.5 percent of the coin and copper only 2.5 percent. Steel, which was used in pennies in
World War II, could be substituted next.
But why stop at the penny? It’s not the only American coin that costs more than it’s worth. Each nickel costs 11.18 cents to produce and distribute, the mint says, at a loss to taxpayers of $56.5 million in the last fiscal year. In its 2013 budget proposal, the Obama administration has asked for authority to alter the composition of the nickel, too.
Mr. Velde has suggested what he calls a “medieval solution to a medieval problem.” The United States could resolve the penny and nickel quandaries simultaneously, by revaluing the penny as a five-cent piece and abolishing the nickel. Nickels would be melted down rapidly even now, as a business proposition, he says, if not for regulations imposed in 2006 prohibiting the melting or exporting of both pennies and nickels.
Anti-melting measures have a long history — medieval England instituted one in 1299 — but market pressures limit their effectiveness. (English silver coins were debased — their silver content was reduced — in 1343.)
“The whole situation is ridiculous,” Mr. Velde says. “My medieval solution is, well, medieval. The serious, simple solution is to do away with the penny.”
It’s hard to be entirely serious about pennies, though. If there are no new ones, says Lizzie Wright, a native of Louisiana, old ones can be shined up very easily by using Tabasco sauce and a rag. Along with Mike Smith, a fellow performance artist, Ms. Wright cleaned pennies for passers-by at the Brooklyn Museum last year, at no charge.
“We think it’s a useful service for a coin that isn’t very useful,” Ms. Wright says. “And if the penny is abolished, we think that will create greater demand for clean pennies.”
A penny for your thoughts?
