Rob Hardy / Silhouette Staff
After much deliberation, last week finally marked the implementation of the Canadian penny’s demise. Most Canadians either meet this news with approval or indifference. However, if we look at the matter more seriously (as we should) then it might become apparent that this irreversible decision isn’t such a good thing.
Many of us see pennies as simply a nuisance, something we gladly part with or even throw away, but therein lay the issue that is at the center of this debate. For people who are poor, on welfare or even homeless, money in any denomination has real tangible value. It is what makes the difference between a level of comfort and a life of misery. For people looking to stretch their budget as far as they can, saving a few cents every day over the course of a month literally allows them to keep their heads above water.
But once we enter a certain tax bracket and/or mindset of abundance, it is easy for many consumers to not care about spare change or see how their overall finances balance out.
Such attitudes lead to overconsumption, feeling safely distant from the threat of a negative bank balance. Indeed, it is this careless spending and financial perspective that has spurred Canada toward a reputation of near luxurious wealth. So, as we part with our savings more easily, so too does inflation rise and give way to further credit schemes. How can a mere penny have value for us when we deal with much larger numbers, albeit in abstract terms, when looking at monthly statements?
Yes, it’s absolutely true that producing the penny may not be economically viable anymore, but that is simply because we have priced ourselves beyond reason and common sense. No longer are price increases intermittent – they are taken for granted as “natural” when each calendar year changes. Just calculate how much your first year’s tuition will have gone up by your final year if you need any further proof.
It’s important to remember is that the penny is representational of our larger attitudes and beliefs toward financial solvency. It’s for good reason that the solid saying, “a penny saved is a penny earned” entered our verbal lexicon. Though one-cent tender will soon go the way of paper dollar bills, the lesson still applies, likely all the more as we will continue to see our cost of living rapidly increase.
It’s worth understanding that maintaining the penny in circulation has real economic costs. Aside from the production costs (which outpace the value of produced pennies by $11 million per year), there are significant costs associated with the handling, transport, and storage of pennies. They are increasingly difficult for consumers to spend, introducing an inefficient dead weight to the Canadian economy.
These are some great, simple-to-understand resources regarding why getting rid of the penny makes complete sense:
http://youtu.be/y5UT04p5f7U (American example, but the principles are largely the same)
http://youtu.be/nU4E6SSy5Yg (Canadian)
http://www.budget.gc.ca/2012/themes/theme2-info-eng.html (Backgrounder from Budget 2012)
The article suggests that the abolition of the penny will lead to a rise in prices, making the necessities of life unaffordable for the poor. However, international examples fail to bear out this concern. Australia, New Zealand, and a number of European nations have successfully phased out their one-cent pieces without adverse effect. A study by the Bank of Canada has concluded that removing the penny from circulation would have no noticeable impact on inflation.
The author’s concern may be that the practice of rounding to the nearest five-cent increment cause (modest) increases to the post-tax price of goods and services. But any gains/losses (never more than 2 cents) will even out over time. Statistically speaking, consumers are just as likely to round up in a transaction as they are to round down. Additionally, any non-cash transactions (e.g. credit/debit/cheque) will still be paid to the nearest one-cent (i.e. no need to round).
This article fails to provide any compelling evidence that the abolition of the penny would be detrimental. Yet there is enormous evidence of benefit. If we truly expect our government to make evidence-based, rational policy, the penny has to go.
I am the author of this article. This piece was meant to be anecdotal, and for various reasons I did not intend to write something hard-hitting, or to offer evidence herein.
I acknowledged that producing the penny is not economically viable, given where we are now, but then the latter was the point, not the former. Considering where we are, I am asking WHY is the penny suddenly worthless when for 150 years it was part of national transactions? Why is our money becoming worth less (aka worthless)? The cost of living has been multiplying exponentially during the past decade – as evidenced, for example, by the taxi cab protests today due to insurance rates tripling, making the job of driving them too much cost for the trouble of the job. How do we expect the penny, and soon the nickel and dime, to retain their worth when we are living in a world where tuition, as another example, in Ontario is going to go from the 7,000s to the 9,000s just during the course of the next graduating class’ 4 year cycle?
Getting rid of the penny highlights the fact that inflation is becoming an unchallenged fact of life. As some Canadians give in, the rest of us have little choice.
Hi Hardy, thanks for responding to my comment.
I realize that this article is an Opinion piece, and that the objectivity bar isn’t as high as it would be in the News section. However, I believe it is important that you, I, and anyone else reading this base their opinions on facts. That is why I wanted to post an evidence-based reply.
I think that you may have a misunderstanding of how inflation works. Removing the penny from circulation does not cause or aggravate inflation, as I noted above. It is simply a reflection of inflation that has already happened. In other words, it is because the penny has much less purchasing power than it used to that it makes sense to remove it from circulation.
The causes of inflation are varied, and not being an expert myself I won’t get into too much detail. However, most economists seem to agree that a slow, steady rate of inflation is optimal for an economy like ours. The penny is not “suddenly worthless,” but has been slowly depreciating over its lifespan.
The costs of tuition, car insurance, etc. are important issues, but they aren’t really relevant to the question of the penny. While inflation plays a role, they are also driven by factors other than the CPI. Getting rid of the penny will not aggravate these problems.
I think there’s an important point in your article about the rising cost of living, but the penny is clearly the wrong example to help you make it.
The good old, “This article is wrong but I don’t understand why” trick. Nice try Matthew.
Hi Matthew: I will respond to your reply. I wrote this piece from a well-researched perspective, but as has been established, this is a complex issue and that was one of the reasons this was very short. Ergo, I aimed for vague lamentations. Writing is difficult because even if you organize extremely well, you might not necessarily convince most people of your view.
That being said, I don’t see anything non-factual in what I wrote or asserted. And you are right that getting rid of the penny is not the cause of inflation, but the other way around. Perhaps, the way you read the article made you think I was making that claim. However, it is undeniable, now that we are on the subject, that eliminating this coin WILL have an impact on the way we think of money. And as the penny has slowly lost value even prior to this move, which we also correctly agree on, so too will now the nickel and dime.
Without going deeply into it for the sake of brevity, the proper way to look at inflation actually is that our money is worth less, not that the goods and services are suddenly worth more. And this is due to a weakened economy. Now if you don’t agree with the last two sentences, that’s fine. The article is a talking piece – something people comment on to examine the issue as we try to get closer to the truth. But I have studied economics and feel this is quite clear. To cite my previous example, there is no way that a degree is worth more today than it was last year, proportional to the cost increase. It may be more necessary than before, but this involves also looking into the ways we are hijacked for our dollars (which require so very much of our time and effort to obtain) for things which we seem to be unable to live without (gas, housing, food, etc). Look to Premier Wynne’s comment about how the province needs to generate revenue for transportation upgrades, so they will now charge commuters to park at transit terminal lots. She’s clearly saying, it’s not that these parking spaces are suddenly now worth more, it’s just that they want to gather financial reserves and will do so wherever the public’s most vulnerable access points are. This is the difference between what something costs versus what an entity can actually charge.
Okay, now we are getting a bit off-topic, but I bring this up because these kinds of sudden cost increases are what spurred us to stop minting the penny, and that to me seems to be the bigger picture of what has happened relating to this event. I think it is easy to see how the penny is the perfect example for illustrating just how overpriced living in our society has become.