As part of the new federal budget the Government of Canada has decided to stop producing the one cent coin, more commonly known as the penny.  Business will be encourage to round up or down to the nearest 5 cents.

According to the federal government there will be no regulation forcing business to round down or up.  The government suggests that business round down $1.02 and less and round up $1.03 and up.  However the rounding will be left to the discretion of the individual business.  It would be safe to assume that most businesses will round up because it will help their bottom line.

The government of Canada expects to save $11 million a year by no longer producing the 1 cent coin.

What can you do to protect yourself from this new business practice:
  • Pay with a credit card or debit card.  There will be no rounding when paying with a card.  However make sure that the business does not have an extra charge for small credit or debit card transactions.  Some convenience stores charge a service fee for transactions less than $10.  Also make sure that your bank does not charge for debit card transactions.  You will also have to make sure that you never carry a balance on your credit card or will end up paying more in interest charges.
  • Carry a few pennies with you at all times.  35 billion pennies have been minted.  Even with the Mint's metal recovery program, there are billions of pennies in circulation.  If you have a hoard of pennies in jars now would be the time to put them to use.
  • Use American pennies.  Most businesses accept American coinage at par.  The United States mint will continue to produce the 1 cent coin and with the Canadian dollar being equal or worth more than the American dollar now would the time to use US coins.  This is perfectly legal as long as the business is willing to accept the coins.  Many South American countries do not produce their own coins and use US coins instead.  The US mint has produce over 400 billion pennies and most are in circulation because the US mint does not cull pennies out of circulation.
The cost of producing the penny is 1.6 cents per coin and eliminating the penny will save the government $11 million per year.  A study by one Canadian financial institution, Desjardins Group, estimates the economic costs of the penny for the private sector total $150-million annually. This includes counting, storing and transporting the coins.  That is $150 million that the private sector will not be putting back into the Canadian economy.

Expect the Royal Canadian Mint to increase it metal recovery program rate.  Even if 50% of the pennies in circulation were sent back to the mint and melted the copper content would net the mint over $700 million in profit. 

The Bank of Canada would also save money.  As more Canadian switch over to cash less transactions the Bank of Canada will no longer have to print and distribute as many banknotes.

However there will be in increase in the cost of goods as more consumers chose to use debit and credit cards.  Business pay an average of 50 cents per debit card transaction.  They also pay a 3% service charge to credit card companies on the total cost of a credit card transaction.  An increase in the use of credit and debit cards will cut into their bottom line and this will be passed on to the consumer eventually as an increase the cost of goods.

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