Money Monday: On the Death of the PennyApril 2nd, 2012 by Michael Kwan
We have to realize that this news didn’t exactly come out of left field. I discussed the death of the penny last year when the idea was proposed by Finance Minister Jim Flaherty. By far the biggest motivation is simply that of cost: in order to produce a single one-cent penny, it costs 1.5 cents. That just doesn’t make sense, especially when you factor in all the secondary costs of accounting for the pennies, transporting them, and so on.
As far as the logistics are concerned, the death of the penny only affects cash transactions. Everything gets rounded to the nearest nickel, so something that was 98 cents would cost a dollar in cash. If it was 97 cents, then it gets rounded down to 95 cents. Again, remember that this is for cash only. If you use a credit card or debit card, you will still pay the actual amount of 97 or 98 cents.
In my original post, Ray pointed out that the “nightmares that would be required for rounding up and down would be so costly,” particularly when it comes to coding. That may be true, but it is a system that is already working in places like Europe and Australia. All transitions will cost money in the short term, but this looks to be beneficial in the long run. The government will be saving millions of dollars each year by not having to produce the penny, and this money can then be allocated to other budgetary concerns.
While I don’t think that we will be moving to a cashless society any time soon, it does make sense to transition out denominations that are virtually obsolete. It happens with countries whose currencies undergo severe inflation and, in the long haul, it happens to every other country too. It may be a while, but it’s only a matter of time before we start to consider eliminating the nickel too.
What’s your take on the death of the penny? Will it have any real impact on your day-to-day life? Will the trays at cash registers get replaced by “leave a nickel, take a nickel” trays? Will we have to start paying a nickel for your thoughts?
Filed under Money.