The Coin Analyst: Canadian Mint Plans to Stop Making Cents, and the U.S. Should Do the Same
by Louis Golino for CoinWeek
The Royal Canadian Mint‘s 2012 budget, which was issued on March 29, does not include funding for the production of one cent coins, according to Canadian and U.S. media sources.
The cost to produce and store the coins, not to mention the hassle of dealing with them, finally drove our neighbors to the north to decide that it no longer makes sense to make cents.
According to Canadian Finance Minister Jim Flaherty, as quoted in the Globe and Mail newspaper, “Pennies take up too much space on our dressers at home,” Mr. Flaherty added. “They take up far too much time for small businesses trying to grow and create jobs.”
Canadian one cent coins have been issued since 1858. According to Dr. James A. Haxby, author of the recently-published Guide Book of Canadian Coins and Tokens, which is a Whitman Publishing book (www.whitman.com), when the Dominion of Canada was established in 1867, it already had a large supply of cents made in 1858 and 1859 for the Province of Canada.
It currently costs Canada 1.6 cents to make each cent because of “rising labor, metal, and other manufacturing and distribution costs,” according to the Canadian Mint.
The Canadian government estimates that it loses $11 million a year making cents, according to Time magazine . Canada has been using alternative metal composition for its cents for years.
In 1999 more than 20,000 test cents were made from “multi-ply plated steel,” according to Dr. Haxby. Once it was determinated that collectors had managed to acquire examples of these test coins, the Mint decided to issue a special collectors set of them. Only six 2000-dated test coins are known to exist.
Since then Canada has issued cents made of both copper-plated zinc and plated steel.
In addition, according to the Globe and Mail, the Desjardins Group estimates that it costs the private sector in Canada $150 million per year to count, store, and transport the coins.
Canada plans to stop making the coins in April, and the Mint will stop distributing cents to banks in the fall. After that the coins will be withdrawn from circulation.
I suspect that Canadians will start hoarding their cents soon in the hope that they will be worth a premium after they are no longer available in circulation. This is what European Union citizens did during the transition to the euro currency.
According to Canadian officials, 17 other countries have already done away with their lowest denomination coin.
Perhaps the major issue for people who live in countries that have done away with cents, or their equivalents, is the matter of rounding.
Economists say that it all averages out, that there is as much rounding up as rounding down, but many people worry that there will be more rounding up than rounding down, and that the move will be inflationary.
Canadian businesses are urging the central government in Ottawa to do everything it can to explain the move to Canadian citizens. The government has suggested that businesses round to the next five cent increment, but has left it to the private sector to make the final decision on each transaction.
News reports on this story did not indicate that the coins would continue to be made for collectors in proof and mint sets, so for now I would have to assume that there will be no cents for collectors either.
This year Canada issued a special proof set in which each coin, including the cents, were made of 99.99% pure silver.
Last year our own government said it would end production of presidential dollar coins for circulation and only make a limited number that would be sold to collectors at a premium.
U.S. officials claim this would save $50 million per year, but many people, including myself explained that the supposed savings will be dwarfed by the hundreds of millions of dollars of seigniorage income that will be lost. Seigniorage is the difference between the face value of a coin and the cost to make it.
The cent, or penny, has played a central role in American numismatic history. It is, along with half cents, the oldest of U.S. coins, having been first minted in 1793.
It is also perhaps the most widely collected non-precious metal U.S. coin. Many collectors start out as cent collectors, particularly of the Lincoln variety issued since 1909.
The 1909 VDB cent with the initials of the coin’s designer, Victor David Brenner, remains a perennial favorite, as does the much rarer 1909 VDB cent produced at the San Francisco mint. In fact, many collectors cut their teeth in numismatics by searching and searching for those elusive 1909-S VDB pennies, which in higher grades are worth many thousands of dollars.
For years Americans have been told that our own pennies are also produced at a major loss, now costing 2.4 cents to produce. The coins are made of copper-coated zinc and contain very little copper.
It would clearly make a lot more sense to stop making cents at a loss than to stop producing dollars which produce income that helps reduce the deficit. Seigniorage is used to help fund coin production and some of it is returned to the Treasury to reduce the deficit.
Besides, dollar coins last for decades, whereas paper dollars only last a short period, and if Americans were forced to use dollar coins, billions of dollars used to make paper dollars could be saved. Over time the savings from moving exclusively to dollar coins would be even greater, but most Americans remain reluctant to make this switch.
Although it is part of the Treasury department, the U.S. Mint is a self-funded entity that is what is called a public enterprise fund. It does not receive taxpayer funding, but it is required to implement the laws which Congress passes and is subject to congressional oversight
Nickels are also produced at a substantial loss, costing an amazing 11.2 cents to produce, according to CNN Money .
I can already imagine the outcry among cent lovers and those worried about the prospect of the inflation they think will come from rounding up a lot more often than rounding down.
It would make a lot of sense, as Charles Morgan argued recently in Coin Week , to stop making both cents and nickels for circulation, and to produce them only for collectors in small numbers and sold at a premium.
But I doubt that will happen any time soon.
Instead, U.S. Treasury secretary Timothy Geithner has tasked his employees to explore alternative metals that could be used to make cents and nickels at a lower cost. This was proposed in the fiscal year 2013 budget that President Obama recently sent to Congress.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.