My Two Cents on the Canadian Penny

Today, the Canadian government has stopped the production of the penny, and started their initiative to phase out the penny.

"The decision to phase out the penny was due to its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environmental considerations, and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general.

The estimated savings for taxpayers from phasing out the penny is $11 million a year."

I did a bit of research, to see how exactly they plan to do this, and these are the facts:

- production of the penny will seize

- retailers are urged to round up or down to the nearest nickel when completing cash transactions

- cheque, debit, and credit transactions will continue to charge to the penny, not having to round up

- businesses can choose to, or not to accept pennies

- the penny will retain it's value indefinitely

So, is it just me, or are there things that just don't quite fit?  The process seems a little ambiguous to me.  If you pay debit, you still pay to the penny, but if you pay cash, you have to round up or down.  In my opinion, this will skew business ledgers, inventory balancing, and general budgeting all around.  The "rounding guide" that the Canadian government put out is somewhat reminiscent of the grade school lessons we all learned years ago.  It's basic to say the least, and the biggest gap you can pay more or less for is $0.02.  It's not much, and for the average person, you'll at most lose $10 if you are rounded up for 500 cash transactions.  But, if you are a business that completes a couple of thousand transactions per day (gas station, grocery store, Tim Horton's, etc...) that could affect your financial statements by tens of thousands of dollars.

Have you heard about that lawsuit agains Subway in the US? Well, they have allegedly been producing 11" subs instead of 12".  First, you think "What's the big deal, it's one inch".  But, consider that this means that every twelfth sub is technically made at 100% profit, because it's paid for by the inch shortage of it's predecessors.  There are approximately 35,000 Subway locations worldwide, and on average I think it's safe to say they sell roughly 5-600 subs per day.  So, that's about 6,387,500,000 subs per year, if you divide that by 12, that gives us 532,291,667 subs made at 100% profit every year, having been paid for by the inch shaved off of previous subs.  Obviously, this is based on a lot of assumptions.  

But what does this have to do with the penny in Canada?  My analogy is simple - it may not seem like a lot, but when you look at it in a grand scale, the two cents can add up, but where do they go?