Take one, leave one: the penny had been a regular part of Canadian cash for well over a century, sitting at the bottom of wallets, gracing tip jars, and being fished out of pockets to support local charities.
That was until the federal government decided to take the penny out of circulation in the 2012 federal budget, following a finance committee study that deemed the coin too expensive to produce and no longer necessary. The late finance minister Jim Flaherty pressed the last penny on May 4 of that year, marking the end of an era.
A decade later, Canada could be on the cusp of a far more radical shift in payments, as policymakers talk openly about the possibility of all physical money going the way of the copper coin. If that happens, lessons from the demise of the penny could help smooth the transition. Killing off a coin that most people have stopped using sounds simple, but it isn’t.
“I think it will be absolutely valuable going forward as less coins circulate,” Marie Lemay, chief executive of Royal Canadian Mint, said in an interview. “You need that intelligence.”
The ten-year anniversary of the decision of former prime minister Stephen Harper’s government to end the penny comes at a time when money is quickly going digital and Canadians are less likely to carry cash and coin around with them.
Last year, the Bank of Canada signalled it was keeping an eye on the situation, as it accelerated its research on digital currencies, including a virtual dollar. “The world has been changing even faster than we expected,” said deputy governor Timothy Lane. “One scenario we have been watching is whether a sharp decline in the acceptance of cash reaches a tipping point in Canada,” he said. “We’ve already seen that as societies and economies modernize, cash has been losing ground to digital methods of payment — around the world and here at home.”
The central bank’s senior deputy governor, Carolyn Rogers, echoed this sentiment this week, saying that while the shift to digital payments is largely demographic, she could nonetheless see Canadians giving up cash altogether. “We can foresee a future where there is only digital currency, that’s possible,” Rogers said in an interview on May 3. “So, there ought to be a digital Canadian dollar in that case, and so that’s what we’re working on.”
The coin management system that helped guide Canadians into a post-penny economy is now actively helping all Canadians transition into the digital economy.
An important lesson from the penny’s demise is that some people cling to a unit of payment even as the majority moves on. That matters, because a central tenet of government tender is accessibility and universality. In other words, if a critical mass of Canadians want to keep using cash and coins, they should be able to do so. The Mint, thanks to its experience with slowly taking the penny out of circulation, has learned how to orchestrate a smooth transition. Lemay said her agency has become expert at pinpointing where there is demand for coins, and then ensuring there is enough supply in those places.
“You need to have that view into where (demand is) and you need that possibility to move them around to be able to make sure that people access coins and that we do it in a responsible and efficient manner,” she said.
Analysis
This article does a great job explaining how to properly phase out the use of a coin, a process that might be expanding to the rest of our physical cash in the future. One of the hardest things for people as a society to grasp is the concept of change. We are constantly in a state of progress, forever moving forward and innovating. But there are those who wish to hold onto tradition, and when you make a move as huge as eliminating a coin that’s been in use for hundreds of years, the transition is not going to happen overnight. The example the article gave is that the Bank of Canada tracked cash flow and made sure that physical coins were available in places with the highest demand for them. Instituting change slowly allows for the larger general population to transition without much of a battle.
Source
Hughes, S. (2022, May 6). What the death of the penny teaches us about the future of money. Financial Post. https://financialpost.com/fp-finance/cryptocurrency/what-the-death-of-the-penny-teaches-us-about-the-future-of-money
