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Opening Arguments

A nickel for your thoughts

Some real change in Canada:

Canada will withdraw the penny from circulation this year, saving taxpayers about C$11 million ($11 million) annually and forcing retailers to round prices to the nearest nickel, the government announced in its budget today.

The Royal Canadian Mint, which has produced 35 billion pennies since it began production in 1908, will cease distribution this fall due to the coin’s low purchasing power. Production and handling cost for the one-cent coin are a C$150- million drag on the economy, according to a 2006 study by Desjardins, a Levis, Quebec-based financial institution.

“Pennies take up too much space on our dressers at home,” Finance MinisterJim Flaherty said in the text of his budget speech in Ottawa. “They take up far too much time for small businesses trying to grow and create jobs.”

[. . .]

It costs the government 1.6 cents to produce one penny, which has been made of copper-plated zinc and copper-plated steel since 1997.

If it makes financial sense to dump the penny in Canada, it would be an even more justifiable move here, where it costs an astonishing 2.4 cents to produce each penny. That's a little bit nuts for something that spends most of its life on the dresser or behind the couch cushions.

The story says the penny's demise won't have much of an inflationary effect because some prices will be rounded up to the nearest nickel while others will be rounded down. But I think the real reason is that this only matters in cash transactions, which are becoming increasingly rare. And I think there will be somewhat of an inflationary effect as we psychologically adjust to the new reality. The penny is a loathsome burden simply because it is the lowest coin in circulation. Get rid of it, and that status goes to the nickel.