Not too long ago, Canada announced that it is getting rid of the penny. It’s not a complete end to the one-cent piece in Canada; the government will stop minting pennies in the fall, but they will still be legal tender. The main reason that the Canadian government made this decision is that it costs more than a penny to manufacture a penny.
For years, a debate has been present in Canada about what to do about the penny. There has also been a similar debate in the United States. However, Canada finally decided to act, and will no longer produce pennies. In the United States, the debate continues: Are pennies any good?
Inflation and Reduced Buying Power
I’m just old enough to remember being able to buy “penny candy” at the store. When I was the age my son is now, it was still possible to go into some stores and purchase certain kinds of candy — a Tootsie Roll or a LemonHead — for only a penny. Now, though, it’s extremely difficult to find such candies. Indeed, I can’t even remember the last time the penny was good for much of anything. It’s hard to find something for a dollar, much less convince a seller to cut prices to the level of a single cent.
With prices rising, the penny just seems outdated and useless. Candy costs considerably more than a penny, and there aren’t any other goods and services (that I can think of), that cost so little. Buying power has been eroded to the point that a penny is hardly worth the trouble it is to pick one up off the sidewalk.
With inflation continuing, and with the cost of the materials needed to make the penny rising along with other asset prices, it’s little surprise that the penny is coming under fire again. The fact that Canada has abolished its one-cent piece is likely to further fuel the flames.
Would Prices Need to Go Up Without a Penny?
While it wouldn’t be very surprising to see prices rise with the disappearing penny as an excuse, Canada’s model might temper some of this phenomenon, as the country isn’t getting rid of the ability to use the cent. The penny isn’t going to be minted, but electronic and check transactions won’t change. While some prices would go up to avoid giving change, there are some retailers that might let prices go a little lower.
If more people used their debit cards and credit cards, this also wouldn’t be much of an issue. It’s possible to pay $3.98 easily when you have a debit card. However, paying in cash could be problematic, since there wouldn’t be pennies to return in change. Consumers would have to prepare themselves for what’s coming by either hoarding pennies so that they can continue to use the pieces, or starting to do business with only those who barter, or who deal in cash only.
Whatever you decide to do, though, it’s important to keep in mind the effects of inflation. As prices rise, it will be interesting to see where we draw the currency line, and which denominations are changed.
So, what would you do if the United States got rid of the penny?