Good luck finding the 31 billion pennies still out there! Here in Australia we farewelled the 1 and 2 cent coins in the mid 1990s - I've moved house several times since then, and still find the occasional coin somewhere. And that doesn't even account for the hoards that have been tossed away as worthless.
My only regret is that future generations won't understand why we ask police officers "What's the colour of a 2 cent piece?"
Forgive my ignorance, but doesn't there need to be a minimum-value coin in circulation to facilitate transactions? For example, I go to a shop and buy something for £4.99 and pay with a £5.00 note - do I get any change in return?
This is handled by rounding. In the US many businesses already opt out of pennies and just round things down to the nearest 5 cents. It's just an extension of the rounding they already do (for instance when an 8.5% sales tax is added to a 1 dollar purchase, the half cent will be rounded even when the business uses the penny).
Interesting historical note is that when the US half penny was removed from circulation due to it being nearly useless, it was worth approximately 8 cents in today's money.
Most places that have abolished low-denomination coins use Swedish rounding (or at least that's what Wikipedia calls it): when paying with cash, round to the nearest (sometimes this will be up, sometimes down) payable price.
You are clearly too young to recall the Half New Penny piece. I visited the UK in '84 as a young'un, and recall the half-penny being useless, since you had to have two of them together to purchased the cheapest things (at a penny). Before decimalisation, what was the previous smallest coin? The farthing was pretty common, but at one stage it got down to the quarter-farthing (roughly one-four-thousandths of a pound sterling). We also see it in modern currencies, as Bitcoin gets traded in smaller and smaller amounts.
Ultimately, the smallest useful transaction is the smallest value you need a coin (or token) for. Here in Australia, we abolished our 1c and 2c pieces decades ago, and apart from very temporary hand-wringing from some quarters, it's never been an issue. People just weren't purchasing things with a value of 1c and 2c, and getting that in change meant that you had to collect a bunch of them in order to purchase something else.
If you pay in cash it gets rounded up or down e.g. $1.03 becomes $1.05 if it's $1.02 it's $1.00 but if you pay via debit card or credit card it doesn't change.
It depends. In Canada, legally, cash transactions may be rounded to the nearest 5 cents, so you wouldn't get change. In practice, many merchants round down, so you'd get 5 cents change.
Well there's GST+PST added in Canada depending on province so that $4.99 item would probably cost $5.58 then they round the price since the penny is gone, so $5.58 would be $5.60
Retailers are supposed to round up/down depending on amount but you will quickly find that everybody is rounding up unless you say something.
Unless you pay by credit in which case it's exact.
As to how it works, unlike VAT added into the price, we've HST (varies ~13%) or GST (5%) to round up or down by a few pennies on top of the stated price. I'm a bit surprised this is news. It's been well over a year.
You already round to the nearest penny on your transactions, rounding to the nearest 5c isn't that much different. Especially when it only applies to cash transactions.
Besides the opportunity cost of not reclaiming pennies for recycling, another issue is that pennies, more so than any other denomination, fall out of circulation quickly. That's because people don't tend to keep them in their pocket like most loose change; they end up in a jar somewhere.
So by deciding not to mint new coins, you're still signing the penny's death warrant. But you condemn it to a slow, messy death. Stores gradually aren't able to acquire the pennies they need to make change on purchases, as the existing coins fall out of circulation. Eventually the day comes where you need to change the way cash transactions work, because it makes no practical sense to consider the penny a currency. So why delay?
Instead, the government flipped the off switch and gave the penny a quick death. Of course, Canadians can still take their pennies to the bank and trade up for a valid denomination.
Because they can make money off the pennies by recycling them, it costs them the metal worth of the pennies they choose not to recycle. There are also productivity benefits if people don't have to count pennies during transactions. And it's a highly visible action the federal government can take to show it still exists to people who don't read newspapers (like me). I'm sure there are other reasons, but pinning the penny as a "drag on the economy," probably tops the list after the obvious, "I pay taxes to keep the penny in circulation? Why didn't they recycle it?"
"estimated 31 billion pennies that are still in circulation"
"The Finance Department of Canada estimates that melting down the metal from the pennies and reselling it in the industrial sector will bring in $42.5 million in revenue."
So, they're going to buy $310m worth of pennies, melt them down, and sell them for $42.5m? That doesn't seem like a worthwhile exercise.
Well, if they take $310 million in currency out of circulation, they can mint (say) 310 million loonies without devaluing the currency. So if the metal in 100 pennies is worth more than the metal in a loonie they make a profit.
Re-circulating the currency in larger denominations is the same as buying them back. In order for them to take 100 pennies out of circulation, they must compensate the owner with a dollar bill/coin (i.e. a larger denomination) or a dollar of bank credit.
It's a funny sort of "buying" when you can print money. Be careful not to confuse the value of a coin with value of the metal the physical token contains.
I think so... but the profit is a lucky bonus that happens because the coins we decided we don't want any more happen to have some intrinsic value. They would need to take the pennies back even if it was at a "loss" in terms of manufacturing cost vs recycled value.
No net currency value has taken place. Party A gives $1 in the form of 100 1c coins, Party B gives $1 in the form of 1 $1 coin.
It's the same as when you give change to a stranger on the street - exchange two fives for a ten, and you're no better or worse off financially. You haven't bought anything, just exchanged for a more convenient set of tokens.
They'll save money in the long run in not printing the pennies at a loss.
Also, by buying them back from the banks it's the government that takes the hit for the cost of de-circulating the penny, rather than the banks or the consumer. If private industry were taking the hit, people would fight tooth and nail against retiring the penny.
I understand that it might make sense to stop printing new pennies, but how does the central bank benefit by taking the _existing_ pennies out of circulation, assuming the scrap value of the metal is less than the pennies' face value?
(If the scrap value were higher than the face value, presumably the private sector would take the pennies out of circulation, and no government action would be required.)
For the central bank, it doesn't matter what the face value is relative to the scrap value. If they take back a coin, they get both the face currency value _and_ the scrap value - in contrast to all other participants in the system who can only get one of those out of the coin (assuming melting it down was legal).
When you return a cent coin to the central bank, you are simply depositing money in your account with the central bank - you give them one cent of cash, they give you one cent of account balance - and taking deposits does not somehow cost the bank the money that they take as a deposit. Now, the central bank is in the special position that it can create coins and bank notes, which is why they don't necessarily lose any money when they melt down the coin you gave them, as they can just mint a new one, presumably a cheaper one, and the amount of money they have won't change, except by the difference between the scrap value of the old coin and the cost of producing the new coin.
If you didn't take them out of circulation, what would you do with them? Stores, banks, and people would be stuck with their piles of pennies. You'd end up with a situation like US dollar coins: Half-hearted attempts means nobody really bothers to switch. If every cash register in the country, and every person's pocket still has pennies in it, would people really start doing the five cent rounding?
It would be a pretty poor currency user experience.
You missed two key facts: 1. They can't recover all the pennies, so the recovery estimate takes that into account. 2. The Mint already made the pennies, there's no need to buy them, just collect during the usual distributions to banks, and process them after.
Which is somewhat nonsensical, of course - they can already separate out the steel pennies magnetically, and it would be pretty pointless to have all of the remaining pennies after that separation step float. If anything, they'll have the less dense non-steel float and the denser non-steel sink.
Interesting.
I wonder if anyone will fill empty warehouses with them and just sit tight and wait until they're no longer considered currency and so can be melted down (legally)?
My only regret is that future generations won't understand why we ask police officers "What's the colour of a 2 cent piece?"