Eliminate pennies

December 2, 2005, [MD]

Ever since I came to Canada, I’ve been noticing a lot of small things about how things work, that I liked or didn’t like. One thing that annoyed me a little bit was the large amounts of change that ended up in my wallet. Partly because prices in Canada end up being so weird, because of taxes applied at the end (\$1.13 for a donut?), and partly because the cent even exists. In Norway I can remember having one cents (1 NOK is roughly 0.18 CAD), then we got rid of that and only had .10 and .50. Now, we only have .50 and 1, 5, 10, 20 coins (and 50, 100, 200, 500 bills - the 200 and 500 bills are very common since that is what you get at the ATM, and they are roughly equal to \$40 and \$100).

So I’ve been advocating for abolishing at least the .01 and .05 (and preferably the 0.1 as well), since I never use them anyway. I regularly empty my wallet and take out anything smaller than .25, and put it in a jar. It takes too long to try to count up change, and sometimes if you try to pay a 2. 5*s*ausageevenwith.25s, they get annoyed. As well, the “take a penny, leave a penny” shows that people are not too concerned about these small units. I was always wondering though, whether there was a part of economics that studied which denominations would be the most efficient, etc. (This also stems from having been to both Laos and Uzebekistan where the biggest bill in circulation is the equivalent of \$1 CAD! This led to people carrying wads and wads of money to the grocery store. And neither of these countries have galloping inflation today, although they might have had it in the past.)

So I was very happy when I came across a study by Chande and Fisher talking about abolishing the Canadian pennies. According to this author, it costs Canada 4,5 cents to produce each 1 cent, which in fact accounts for most of the coins produced. And if you count the cost to society of storing, counting etc, the cost for each penny comes to over 8 cents! By rounding alternatively up and down, the difference in prices would be almost zero by eliminating it. (In fact, even the five cent costs more to produce than it is worth). Several other countries have already eliminated their smallest currencies. (The one cent is now worth 1/15th of what it was when it was produced for the first time).

A final thought, I always wondered how the EU came up with the initial value for the Euro. I mean, since they established conversions from all the EU currencies, they could have established any numerical value - it would be equally much worth. (Ie instead of 1 DM being more or less .5 Euro, and a bread costing 1 Euro, 1DM could be equal to 4 Euro, and a bread could cost 8 Euro)… Is it that it wants to be roughly similar to a dollar? Perhaps this is nationalism, but I’ve always thought that a currency system with only one unit (ie we count in one NOK, one point five NOK, two NOK - and in some years, I am sure the .5 NOK will be eliminated as well) is easier to use and conceptualize then one with decimal places (\$1.13) etc. But what do I know.


Stian Håklev December 2, 2005 Toronto, Canada
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