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Topic: Eliminate the Penny, add a $5 Coin? Bank of Canada Study  (Read 11665 times)
coinsplus
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« on: July 03, 2007, 12:53:01 am »

Do pennies make sense?

TARA PERKINS

Monday, July 02, 2007

Canada should have ditched pennies by 2005, a Bank of Canada study suggests.

Some economists have publicly been calling on the government to get rid of pennies, saying they are more hassle and expense than they are worth. A report this year by Desjardins Group economists suggested the one-cent coins are costing Canadian society at least $130-million annually.

In response, the Department of Finance said there is still a significant demand for pennies as a means of payment.

But an internal department document obtained under an Access to Information request noted that the “production of pennies has increased in recent years as fewer pennies are recirculated, and more are hoarded.” Economists, such as those at Desjardins, have argued that Canadians are tossing pennies in jars, rather than using them.

The Royal Canadian Mint produced 1.4 billion pennies last year, representing 63 per cent of total circulating coin production.

The Bank of Canada study, marked “draft,” was written in 2005 and released as part of the Access to Information request for records from the Department of Finance. The study looked at Canada's currency system through the lens of two different economic models, and appears to have been done in part to examine the question of when a $5 coin should be introduced.

The first model, called “D-metric,” was developed in 1981 by researchers in Britain and is based on the empirical relationship between the average day's net pay and a currency's denomination structure. Since it was developed, a number of countries have used it to adjust the denomination structure of their currency, the central bank study said.

It estimated that the average day's net pay in Canada would surpass $100 for the first time in 2005. At that point, D-Metric recommends the five-cent coin become the lowest denomination and the $500 note be introduced, the study said.

“Today's purchasing power of the five-cent coin is equivalent to the purchasing power of the penny in 1972,” the study noted.

“Evidence of Canadians' transaction preferences lessens the present need for a new high-value note; however this option should be considered in the near future,” it said.

(The model recommends introducing the $5 coin when the average day's net pay is $150, which is years away).

The D-Metric model ignores some factors, such as cultural preferences, other methods of payment (debit and credit) and average transaction size.

So the bank study also looked at the Boeschoten model, which considers some of those issues. It found that both models “provide relatively similar predictions concerning when a $5 coin should be introduced.” A decision to ditch the penny would be up to the Finance Minister. The Finance Department says it examines coinage issues on a regular basis in conjunction with the Royal Canadian Mint.

As of last summer, the Finance Department had not directly consulted retailers or the public on the penny. A Royal Canadian Mint survey conducted a decade ago found that 35 per cent of Canadians were in favour of eliminating the penny and 26 per cent wanted to keep it.

Australia stopped making one- and two-cent coins in 1990. New Zealand stopped making them three years before that. France, Norway and Britain are among the other countries that have eliminated low-denomination coins.

© The Globe and Mail


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bwho9d
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« Reply #1 on: July 03, 2007, 03:26:59 am »

This idea has been going around lately.

Here's a similar link to eliminating pennies in the US:
http://en.wikipedia.org/wiki/Efforts_to_eliminate_the_penny_in_the_United_States

Personal thoughts:
-I don't like eliminating the penny.
-I am 50/50 for the $500 bank note. This gives counterfeiters a whole new opportunity
to counterfeit higher-denomination notes.
-I like the idea of a $5 coin.
AZ
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« Reply #2 on: July 03, 2007, 12:39:20 pm »

In my opinion, the best would be to have:
- Coins of 10,20,50 cents and 1 and 2 dollars
- The existing set of notes from 5 to 100 dollars

One cent coin is a major nuisance and so the five cent coin is not much better. New Zealand got rid of their 1, 2, and 5 cent coins and reduced the size of their 10,20, and 50 cent coins (which incidentally are minted by the RCM). At least the 5 and 10 dollar notes or the entire set of notes could be made of polymer. I do not think introducing a high-denomination note such as $200 or $500 is a good idea and this will not happen anyway.
bwho9d
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« Reply #3 on: July 03, 2007, 02:28:21 pm »

- Coins of 10,20,50 cents and 1 and 2 dollars

You're going to make some homeless people really angry...

Anyways the idea of rounding it to the nearest dime is good. The time it takes to count those nickels and pennies are not worth it.
La Loutre
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« Reply #4 on: July 03, 2007, 04:20:51 pm »

Last time, it was Desjardins that brought back the "penny issue"...
When you're handling billions of $$$, no doubt you don't wanna waste your time ordering, stocking and selling pennies...

In the 2006 annual report, page 27 (after the 2 black dots on top), it is written:
"In order to expand its ability to meet growing demand and reduce costs, the Mint  [...] (end of the 1st black dot) will review Canada's denomination structure to ensure that the mix of denominations meets the changing trade and commerce needs of Canadians."

What do you think this "review of Canada's denomination structure" means?  ???
AZ
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« Reply #5 on: July 03, 2007, 04:43:01 pm »

That would be the review of the existing coin and banknote denominations. A few changes are possible, the likelihood decreasing from top to bottom:

1. Eliminate 1 cent
2. Eliminate 5 cents
3. Replace $5 bill with a coin
4. Replace 25 cents with 20 and 50 cent coins

The banknote denominations and their design and security appear to be just right. It's the coins, both denominations and sizes, that could and perhaps should be changed.

venga50
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« Reply #6 on: July 03, 2007, 08:39:10 pm »

Rounding to the nearest nickel or dime should only be done for purchases being paid for by cash.  I very rarely pay via cash unless my total purchase is less than $10.  If I am paying by credit or debit card, as I do for about 95% of my purchases, why would rounding be necessary?

AZ
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« Reply #7 on: July 03, 2007, 08:55:33 pm »

Exactly, this is how it works in the countries which eliminated 1, 2, and 5 cent coins. The rounding is only done for cash transactions, electronic transactions are not rounded.
bwho9d
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« Reply #8 on: July 03, 2007, 10:14:45 pm »

I agree folks. The time wasted counting cash, validating cash and giving change aren't worth it. Retailers and businesses are losing money off this.

This will also encourage the use of credit and debit cards. They are secure, quick and convenient (and more sanitary).
Hudson A B
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« Reply #9 on: July 04, 2007, 10:58:21 pm »


The banknote denominations and their design and security appear to be just right. It's the coins, both denominations and sizes, that could and perhaps should be changed.



Exactly.

Pennies should be removed.
Nickels should be triangles
Dimes should be squares
25c should be pentagons
50c should be hexagons (so pretty)
and $1 should be septagons
and $2s should be Octagons.

The new $5 coin should be a 3-D triangle, like those 4 sided dice.  Wouldnèt that just fit perfect in your pocket :P  lol 

CPMS Lifetime Member #1502.
m_samourai
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« Reply #10 on: July 29, 2007, 02:24:36 am »

I hate the penny >:(, and could do without the nickel as well.

The $500 bill may be necessary as inflation makes 100 worth less and less.

Isn't it a trip that there was a $1000 in 1935?  That would be like a bill worth at least a few $100,000 now!! 
Oli1001
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  • www.CanadianCurrency.ca
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« Reply #11 on: July 29, 2007, 12:25:33 pm »

I hate the penny >:(, and could do without the nickel as well.

The $500 bill may be necessary as inflation makes 100 worth less and less.

Isn't it a trip that there was a $1000 in 1935?  That would be like a bill worth at least a few $100,000 now!! 

Actually, from what the BOC calculates, $1000 in 1935 would be $15,541.67 today.

This site by the BOC may be of interest; http://www.bankofcanada.ca/en/rates/inflation_calc.html
m_samourai
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« Reply #12 on: July 29, 2007, 09:36:43 pm »

interesting site, thanks for the info.  i was thinking what $1000 could buy you in real estate in Vancouver in 1935, and what that might cost today.    :o
 

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