Proceedings of the Standing Senate Committee on
National Finance
Issue 7 - Evidence - June 1, 2010
OTTAWA, Tuesday, June 1, 2010
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the costs and benefits of Canada's one-cent coin to Canadian taxpayers and the overall Canadian economy.
Senator Irving Gerstein (Deputy Chair) in the chair.
[English]
The Deputy Chair: Honourable senators, on April 27 of this year, the Standing Senate Committee on National Finance was authorized by the Senate to examine the costs and benefits of Canada's one-cent coin to taxpayers and the Canadian economy.
This morning, we will hold our second meeting on the subject. Our study on the penny has already generated considerable media and public attention. The Finance Minister was asked about it last week and he said, "I think it is inevitable that eventually the smaller coin, the penny, will be eliminated.''
Perhaps the key questions before us could be expressed as: Is now the time to scrap the penny? If so, what will be the consequences and how can they be managed? The minister has made it clear that he will pay close attention to the recommendations that arise from our study on the issue.
Last week, we heard from officials representing the Royal Canadian Mint, the Bank of Canada and the Department of Finance Canada. Numerous references were made to a 2007 report prepared by the Desjardins Group entitled "Should We Stop Using the Penny?'' We are pleased to welcome the authors of that study from Mouvement Desjardins: François Dupuis, Vice-President and Chief Economist; and Jean-Pierre Aubry, Economic Consultant.
Also appearing this morning are John Palmer, Associate Professor, Department of Economics, University of Western Ontario; and Dinu Chande, Economics Teacher, Glebe Collegiate Institute. Professor Palmer has been a long time advocate for the elimination of the penny, and Mr. Chande is co-author of a 2003 article in Canadian Public Policy entitled "Have a Penny? Need a Penny? Eliminating the One-Cent Coin from Circulation.'' Mr. Chande currently teaches economics at Glebe Collegiate Institute in Ottawa.
Welcome, gentlemen. Mr. Palmer will proceed.
John Palmer, Associate Professor, Department of Economics, University of Western Ontario, as an individual: Honourable senators, thank you for inviting me to appear. It is an honour to be here speaking with you.
I first started thinking and writing about the role of the one-cent coin in our economy over 20 years ago. I will deviate from my prepared remarks to say that if there was a good time to eliminate the penny, it was 20 years ago and not now.
While waiting in a long check-out line at a supermarket, several of us were delayed as each person said something like: "Wait a minute; I think I have three cents here.'' I looked at the people in line and wondered how much time was being wasted while people waited as customers and clerks counted pennies.
That created my interest to get rid of the one-cent coin — simply the waiting time for customers. I did not look at any other costs when I began thinking about it. It became clear even in 1990 when I wrote my first article about this issue, that the one-cent coin would not buy much, if anything. In the 1950s when I was a child, you could buy two root beer barrels for a penny, a pack of soft candies or a baseball card with gum for a penny. By 1990, as a result of inflation, items like these had much higher prices. In other words, the one-cent coin had outlived its usefulness 20 years ago.
I wrote in 1990 that 60 years ago — in other words, 80 years ago from now — we had the same denominations of currency as we have now. However, a penny could buy something at that time. Since 1933, the average price level as measured by the Consumer Price Index has increased by a multiple of 20. What we used to buy for one penny we buy now for about 20 cents on average. Penny candy and penny whistles are priced in dollars or tenths of dollars, not pennies.
Shortly after I wrote that piece, my younger son, Adam Smith Palmer who was 15 years old at the time, thought it was silly of me to raise a fuss about pennies. Before the year was out, he had completely changed his tune. Why? It was because he had a part-time job at a local fast-food coffee shop. He realized he did not like to wait while customers said: "Wait a minute; I think I have 4 cents here.'' He also had to count out pennies as change and roll pennies for his boss.
In July 1990, a major Canadian news story picked up my initial column on this topic. Their story hit the wire services on August 2, 1990, the day Iraq invaded Kuwait. That day and over the next few weeks, many news organizations looking for a lighter story to have at the end of their newscasts would say, "On a lighter note, a professor at the University of Western Ontario wants to get rid of the penny.'' They interviewed me on getting rid of the one-cent coin, and I soon became informally known as the unofficial chair of the "Ban the Penny Campaign.'' I appeared on interview shows, including CBC's "The Journal,'' and making appearances for charitable organizations.
Before appearing on a CBC radio interview a few years ago, I did a rough calculation of the value of time lost in transactions involving the use of the one-cent coin. The results were startling. I tried to bias the numbers downward so I would not stack the deck in favour of my findings. Using the penny costs Canadians a minimum of between $20 million and $25 million per year in waiting time alone.
As others have testified or will testify, this estimate is quite low because I tried to ensure I did not overstate the case against the penny. These estimates do not include costs to the merchants and financial institutions that have to deal with pennies at their institutions.
Numerous arguments have emerged in the past 20 years for why we should keep the penny. Time permitting, I would like to address some of these.
First, will not all merchants round up prices and rip off the consumers? Judging from the large number of establishments that have "take a penny, leave a penny'' cups and from the number of pennies that disappear from circulation every year, one must wonder how serious this concern truly is. Nevertheless, we all know that many Canadians will object if we get rid of the penny. They will say, "All the prices will go up; it will be inflationary.''
We do not need explicit government intervention to deal with this concern. Let me repeat: We do not need explicit government intervention to deal with this concern. Many merchants will round down. Customers who care will favour merchants who round down or who round up three and four cents to five cents while rounding down one and two cents to zero cents. In New Zealand and Australia, some merchants used rounding down as a marketing tool during their transition period. Furthermore, letters to the editor and news stories will create informal pressure for most merchants to fall in line with an acceptable rounding practice. I believe in your previous hearing that you referred to this as the Swedish rounding practice.
There are many more valuable things for policy-makers and authorities to do with their time than wrangle over what will happen if we start rounding to the nearest zero or five in prices. Keep in mind that rounding will only take place on the total after-tax bill, not on each item. Furthermore, all purchases involve a percentage tax that is rounded to the nearest cent already. We already have rounding. This concern is a non-issue. It has never amounted to anything in Australia or New Zealand when they eliminated their one- and two-cent coins, and New Zealand also eliminated its five-cent coin.
I do not personally care about pennies. I am happy if merchants want to round their prices up. I do not want the pennies; keep them. Not everyone shares that view. In the market place, I anticipate we will see merchants rounding to the nearest five or zero — the standard rounding we all learned in grade 5 arithmetic class.
Second, what about young people who want to start coin collections? This was an objection I ran into during a debate on CBC about getting rid of the penny. Coin collections can start with nickels or dimes. These coins still buy less today than the penny did when I started my coin collection in the 1950s. We do not need pennies to start coin collections.
Third, what about people at the mint who will lose their jobs? You heard testimony on Thursday that between 10 and 15 people are estimated to lose their jobs by not minting the penny.
I do not know anyone who jumps for joy when others lose their jobs. At the same time, we live in a dynamic, changing world and that is why we have a social safety net in place. That is also why we have government programs designed to encourage people to save for contingencies.
In the end, society will be better off if those who lose their jobs are freed up to produce something else. That is the key of economics — freeing up scarce resources to move to more valuable uses rather than producing something that adds costs to our economy.
A fourth criticism is will the mint not have to use a lot of other coins to "buy back'' all the pennies out there? Will they not end up having to mint more coins anyway? The answer is no. Once the mint stops minting the pennies, people cash them in, they get additions to their chequing accounts and they get bills in exchange. The mint will not have to mint these coins.
The simplest way for this transition to take place is just to announce that as of let us say this coming January, they will no longer be minting any new one-cent coins. As a result, to plan for this eventuality, merchants will begin rounding automatically. Gradually, as merchants receive pennies in payment for items, these pennies will find their way to the bank where they will be sent to the mint to be melted down and the metal recycled, which is another interesting reason to get rid of the penny. There is a lot of valuable metal there, as people have presented in other arguments, that has more valuable uses elsewhere than as pennies that create costs for us.
A fifth objection is what about the charities that depend on pennies as a major source of contributions? Charities have, in fact, enlisted my support — charities that have had bins that say throw your pennies in here; Palmer says get rid of the penny, well get rid of them here instead.
This concern will not go away by fatuously replying, as one person has, that people can donate nickels and dimes instead, although that is what will happen. As my older son, David Ricardo Palmer, recently said: "Lots of people will gladly throw six pennies in a charity bucket, but would not even consider putting a nickel in one.'' That is how useless people think pennies are. They would be happy to get rid of six pennies but not a nickel when it comes to donating to charity.
These organizations will lose in the short run, although it is easy to imagine some creative campaigns they might use to collect pennies during the transition phase, from which they might actually gain donations. Indeed, as others have testified, this is what happened in New Zealand and Australia. The charitable organizations ran campaigns to collect pennies and came out quite well as a result.
However, their loss, even if they should lose, should be no reason for imposing such high transaction costs on all Canadians. Times change, economic conditions change. We experience what Joseph Schumpeter referred to as "creative destruction,'' and it behooves all of us to encourage and foster the creative part of that phrase.
Finally, what about the costs and confusion of having prices rounded to the nearest five cents for cash customers and to the nearest penny for credit and debit card customers? I have read testimony that people are concerned about having to reprogram the cash registers. It seems to me that in Ontario anyway, they are having to reprogram their cash registers about once a week as the tax policies change.
I know that is an extreme statement, but it seems they have to reprogram every time there is a change in tax. The GST is cut, fine; we have to reprogram the cash register. We move to an HST, fine; we have to reprogram the cash register. This will not be a major problem. All it takes is a little card on the computer to say "if the price ends in six or seven, round to five; if it ends in three or four, round to five.'' You can imagine what the card might say. Merchants can take this step quickly and easily.
As you will note, I have not addressed the negative seigniorage argument — the fact it costs so much and uses so many scarce resources to distribute the penny. Even though it is a compelling argument, as other witnesses before and here will show you, my approach to the topic has been solely from the perspective of transaction costs. The transaction costs I have addressed are in addition to any seigniorage losses suffered by the mint and the federal government.
The Deputy Chair: Mr. Palmer, I was delighted to hear the name of your children, as well as your cogent remarks. I have to ask whether your middle name might be John Maynard Keynes Palmer.
Our next witness is Mr. Chande.
Dinu Chande, Economics Teacher, Glebe Collegiate Institute, as an individual: I am pleased to have the opportunity to appear before you this morning to present my views on the removal of the Canadian penny from circulation. I am an economics and statistics teacher at Glebe Collegiate Institute, and co-author of a paper with Dr. Timothy Fisher exploring the economic implications of removing the one-cent coin. This paper was published in Canadian Public Policy in 2003.
Our central argument for removing the penny from circulation came down to cost. Since the Royal Canadian Mint is a Crown corporation, the cost of producing the penny is borne directly by the taxpayer. For our paper in 2003, after some reluctance, the mint provided us with their production or what they call "mintage'' costs; from there, we had to make inferences from their annual report about their other costs — such as equipment, overhead and transportation costs — associated with the penny.
Since this time, the Desjardins Group has been able to acquire better access to the mint's numbers so I will leave it to them to present the total cost savings that would be achieved if the penny was removed from circulation. I can tell you that no matter how you calculate it, the penny costs significantly more to produce than it is worth.
We know that pennies are very expensive to produce relative to their monetary value. Our paper went a step further and attempted to quantify the time costs associated with the penny. Basically, we considered the additional time that pennies can add to cash transactions as either consumers or retailers count out the pennies to make change, and we applied an average wage to this lost time. The result was tens of millions of dollars of lost productivity every year attributed to the penny.
After conferring with my co-author, Dr. Fisher, in advance of this meeting, we believe there is another cost associated with the penny that we did not touch upon in our paper, and this is an environmental cost. All Canadian coins are manufactured at the mint's Winnipeg production facility and then shipped to distribution centres around the country. According to their 2009 annual report, over the last three years, the mint has produced an average of 741.3 million pennies per year. At a weight of 2.35 grams per coin, this results in a total weight of close to 2,000 metric tonnes of pennies.
What is the environmental cost of transporting 2,000 tonnes of pennies across our enormous country every year? How much carbon are we unnecessarily emitting?
A common misconception that Mr. Palmer referred to is that the mint will have to produce more nickels and dimes to compensate for the removal of the penny, but this is a fallacy. The Desjardins Group studied the effects of New Zealand's removal of their one-cent and two-cent coins and found there was no increase in combined production of their 5, 10 and 20-cent coin denominations. What this means is by removing the Canadian penny, we can reduce our carbon footprint associated with coin production in our country.
Since the production time and environmental costs of keeping the penny are so large, the question becomes why do we still have the penny? Why have we not removed it yet? I believe that part of the problem is that there are some common misconceptions in the public about what it would mean if the penny was removed from circulation.
Anecdotally, I have noticed in the past when discussing my paper with people that there are common questions that usually arise and some common misconceptions about the consequences of removing the penny. You have heard Mr. Palmer, who could rightly be referred to as "the father of the remove the penny cause,'' explain that he has been encountering these same misconceptions for the 20-plus years that he has been advocating the removal of the penny.
I believe the biggest misunderstanding surrounding the removal of the penny is that people believe all prices will need to be rounded to the nearest nickel, but this is not true. Only cash transactions, which represent a decreasing proportion of total transactions in our economy, will need to be rounded.
Suppose you were about to pay for an item that was going to be rounded up because the price is $12.98; if you wanted to you could opt to pay with your debit card to save the 2 cents. I do not know if many of us would do that. Other prices in the economy, such as stock prices and bank interest on savings and loans, will remain priced to the penny.
Some people are against the whole rounding process even if it is only on cash transactions. They realize that sometimes the total price will round up, and sometimes down, but they still remain adamant that they should pay the exact price of the products they are buying without any rounding. At this point, I usually remind them that we already round our prices to the nearest penny,. because after we apply our sales tax percentage to our subtotal, the total is either rounded up or down to the nearest penny. Rounding already occurs, and we get along just fine without a half- cent or quarter-cent coin because, just like the penny, these coins would, for all intents and purposes, have negligible value.
Other people have commented to me that they believe prices will rise because prices will more often be rounded up than down at the cash register. Think about it, these people would say: Many items end in 9, for example $1.89 or $12.49. Since many items end in 9, many prices will get rounded up.
However, the point they are missing is that with multiple-item transactions, in particular with the application of sales taxes to the subtotal, the final digit of the cash register price becomes almost completely random.
In our paper, Dr. Fisher and I went about demonstrating this by conducting a simulation. We entered into our spreadsheet the prices of all the items at a famous coffee chain. Indeed, many of these items had prices ending in 9. We carried out a 10,000-item transaction simulation involving single- and multi-item purchases, with the application of the sales taxes. As we expected, the rounding was symmetric; that is, sometimes prices get rounded up, sometimes they get rounded down, and sometimes they do not require rounding at all. In the end, the average rounding was zero.
We do not need a coffee shop simulation to confirm this fact. We simply need to look down under. In both Australia and New Zealand, where their one-cent and two-cent coins were removed two decades ago, there were no resulting noticeable effects on inflation. In fact, when we were doing our research, the Reserve Bank of New Zealand explained that many retailers took advantage of this opportunity to advertise that they would always round down their prices as a marketing opportunity.
This is an important point that needs to be understood by consumers, because according to research commissioned by the Royal Canadian Mint in 2007, of the 33 per cent of consumers who were against removing the penny, the number one reason they cited was fear that prices would more often be rounded up. That is their number one fear. However, as our research and international experience shows, these fears are unfounded.
Given these common misconceptions about the effects of removing the penny from circulation, I would recommend a well-thought-out public awareness campaign to alleviate some of these concerns.
I would like to finish off by asking you to consider an alternative way of thinking about the whole removing-the- penny issue. Suppose that at this moment we were asked to recreate our entire denomination structure. What values would you choose for Canada's coins? Would you choose a coin with the purchasing power of a penny to be our smallest denomination? Bank of Canada Deputy Governor Pierre Duguay reminded us that due to inflation, the penny is now worth 20 times less what it was worth when it was first produced by the mint in 1908. Perhaps we would choose a nickel or maybe even a dime as our lowest denomination, but definitely not a coin with the value of the penny. After all, why would we spend tens and possibly even hundreds of millions of dollars a year producing and transporting across Canada a coin that costs more than it is worth?
The Deputy Chair: Thank you, Mr. Chande.
As I mentioned in my opening remarks at our meeting last week, representatives of the Royal Canadian Mint, the Department of Finance and the Bank of Canada made numerous references to the study conducted by Desjardins. It is with great pleasure that we welcome Mr. François Dupuis today.
[Translation]
François Dupuis, Vice-President and Chief Economist, Mouvement Desjardins: I thank the committee for its invitation to discuss the penny, in particular. We will present a summary of the two studies we did in 2006 and in 2007.
First of all, I will tell you the reasons why a financial cooperative such as ours has undertaken studies on this issue. Mouvement Desjardins has a very broad economic education mandate. We are very interested in issues that affect society, and of course, our clients and our members. We realized that there were significant costs for our institution as far as handling and keeping the penny in circulation are concerned.
It must be said that there is not a great deal of accessible documentation on the subject. In 2005, we therefore started looking at what had been done and what we could do. This led us to our two studies.
We realized that this is an normal phenomenon for a modern society, that is to ensure value for money with its coins and bank notes. As my colleagues mentioned, inflation over time has resulted in coins having less and less purchasing power. We must consider removing some and potentially adding others.
Second, the penny problem generates major costs for society and not only for government. My colleague will describe the costs for Canadian society in general. The cost to the government is among the lowest of all economic units in Canada. It is very interesting.
One of our main observations is that the coin has practically no purchasing power. Over the course of the last century, the penny has lost 95 per cent of its value and living standards have improved. The average worker earned 20 cents an hour in 1908 and today it is $20 an hour. We can no longer buy anything with these pennies. The coin comes with significant costs for all of society.
We agree with the principle of symmetric rounding. There is no reason why the rounding should not be symmetrical, and it should certainly not be rounded up. It is likely, as certain experiments have shown, that some merchants, with a view to promoting business, choose to round the price down. No one wants to lose a customer. Furthermore, it is more and more common.
I witnessed several experiences where small businesses would give the benefit to the customer over the retailer. There will therefore be no impact on the inflation rate at the end of the day. We are discussing cash transactions only. Electronic transactions will not be affected.
Third, there have been many successful experiences. This is a very simple issue, according to economic theory. Experience has shown that events would unfold as we would have expected. It is much simpler to implement than a goods and services tax, for example, as we did in Canada at the beginning of the 1990s, or the implementation of free trade agreements. It is very simple to implement and we must better inform the public when we are prepared to proceed with it.
On page 2, you have the example of New Zealand, which was very interesting because they proceeded in stages. They withdrew the penny in 1989, and two years later, the two-cent coin. The experiences were so successful that in 2006, they took their five-cent coin out of circulation and they even introduced new coins. They used small denomination coins in order to revamp their coin structure. It was very interesting as an experience. They went from six rather big coins to three. They reduced the number, the size and the weight of the coins.
This is a good thing for consumers who are complaining that coins are constantly becoming bigger and heavier. It would be a good idea to reflect on what we want to do with other coins, as well as potentially taking the penny out of circulation. We went further in our second study which is not the subject of this morning's meeting, but we could discuss it if necessary.
I will now give the floor to my colleague who will carry on with other findings, more specifically with the cost assessment for all of Canadian society.
[English]
Jean-Pierre Aubry, Economic Consultant, Mouvement Desjardins: Good morning. First, I wish to talk about the point that Mr. Dupuis just mentioned. The process of optimizing denominations of coins and notes is a normal process. We sometimes forget that and we dramatize the issues.
I was at the Bank of Canada when we decided to have a one-dollar coin instead of a one-dollar note. It was incredible what we heard at that time, that the dollar will fall if we do that; the value of our money will decrease. As Mr. Dupuis mentioned, the experience in other countries shows it is quite feasible, something to prepare for, to plan, but something that does work.
The main reason for withdrawing the penny is not just the negative seigniorage; as mentioned, it is the fact that consumers are not using the penny for cash transactions. That is why they hoard the pennies, and at the end of the day consumers do not use pennies. If something is not used, you remove it from circulation.
At the beginning of our study, we chose to look at all costs, not only the costs for the government but also the costs for financial institutions, retailers and consumers. In the end, all these costs are paid by the taxpayer. If retailers have a higher cost, they charge for it. If financial institutions have a higher cost, they charge for it. If the government has higher costs, as was mentioned, they charge for it. At the end of the line, taxpayers pay the total $130 million that we mention in our study.
The recycling program is there because there is hoarding; people do not take the time to roll them, deposit them or even just to use them. An interesting statistic: when we compare the demand for the one-cent coin to the demand for the one- and two-dollar coin, basically the demand for the one-cent coin, as mentioned Thursday, is about 1 billion a year; the demand for the one and the two is about 100 million, so it is 10 times larger. That shows the level that the penny is not used or hoarded.
The argument that it is part of our heritage is valid, but we should not push it too much. In my mind, keeping the penny has a negative effect on the perception of Canadians about the value of our money. We should respect it. People throw pennies away; they drill holes in them to make a cheap washer, and so on. This is an important factor for me. We should give them useful coins and notes such that they do respect them.
It is important to inform the public about the numbers. So many aberrations are floating around. A western newspaper mentioned that if we remove the penny, for example, the foreign exchange transactions that need four decimals will no longer be able to be processed. Of course, it is a false statement. That indicates how far the bad arguments based on fear have gone.
I want to mention the cost. We evaluated the total cost in 2005 at approximately $130 million. We looked at four agents: the government, financial institutions, retailers and consumers costs. For the government, the total represents not less than 10 per cent, about 8 per cent. At the time there was no recycling and basically we were using an assumption of 750 million pennies produced per year.
As to cost to financial institutions, with the database of Desjardins Group we were able to look at costs of storing, moving items, staff and transportation costs, et cetera. We then blew up the number to the full financial system in Canada. This number is fairly solid; it is about $20 million.
For costs of retailers, we used information from Desjardins about the ins and outs that go from financial institutions to the retailing businesses with Desjardins. We blew the figure up and arrived at a cost of $20 million. To that we added the waiting time spent by people at the cash, the time employees take to give and receive coins, the accounting and so on. The total estimate is $60 million.
We mentioned the waiting time. We also tried to determine the cost of interest lost, because this is a non-interest bearing asset. Also, there is the cost of the time to go to the bank, roll pennies and deposit them. For the consumer, our estimate was about $70 million a year, but we did not want to stack the deck, so to be prudent, we put the figure at $40 million.
It is interesting how the recycling program is affecting the number. As I mentioned, the assumption there is for 750 million a year. Now the production is closer to 500 million. However, for estimating the impact of recycling, I made a small simulation. If we produce 500 million coins at a cent and a half and have 500 million at half price because of the recycling activities, the $11 million estimate will not be changed. However, our three other numbers — the cost to financial institutions, retailers and consumers — will increase by 25 per cent, not far from that, and the total cost will go to $160 million. The recycling does not change the business case much.
It is important to notice that in recent years the demand went up on average because there are more transactions; so people are hoarding and recycling. It reduces the government costs a little bit, but if the general demand in the total economy goes up, the total cost is still rising.
I want to briefly address the myths that we mentioned in our second note. There is so much incorrect information circulating, such as the idea that withdrawing the penny will be inflationary. We mentioned that. We did communicate with the Reserve Bank of New Zealand; it is false information.
Taking away the penny would reduce the precision; we discussed that before. Canada's recycling does not change the cost benefit analysis that much.
I did discuss the concept that abandoning the penny means abandoning our heritage. The question of the cash registry in the retailing business is not a problem. Other countries have done it. We can do it.
The Deputy Chair: Thank you. We will go to questions.
[Translation]
Senator Poulin: Given that I am from Sudbury, I find it most appropriate, Mr. Chairman, that you give me the floor first to ask questions.
In Sudbury, the copper and nickel industry is very important. Tourists do not only come to visit us because of the big nickel, there are other well-hidden advantages to Sudbury. We know that if this becomes too well known, too many people will want to move to Sudbury.
[English]
My first question is for Mr. Palmer. I thank you for the interest you have shown over the years in the issue that is before us today. As I was saying, I am from Greater Sudbury. Has there been any research done on the impact on the mining industry in Canada, specifically copper?
Mr. Palmer: I do not know of any specific research that has been done on this area. I will address the issue from a different perspective, and that is that the copper and nickel that are mined have alternative uses. Right now the prices of the commodities are very high. That is one reason the seigniorage losses are so massive in producing the penny. If copper and nickel prices are high, that means many people want to buy copper and nickel, and it will not result in a major job loss problem in the Nickel Belt.
Senator Poulin: I will ask the question another way. What percentage of the copper mined in Canada is used for the nickel?
Mr. Palmer: I have no idea. Does anyone know? From what I have read, I think the amount of copper is very small.
Senator Poulin: I will come back to that question with other witnesses.
Mr. Chande, you said that only cash transactions would be rounded up, and that consumer fears are unfounded regarding the possible rounding up of prices. Have you done any research with the retail industry itself?
Mr. Chande: I am not sure about your question. Is it whether retailers have looked into rounding?
Our simulation assumed that retailers will follow exact rounding rules. Three and four cents will round up to five cents, and one and two cents will round down to zero cents; six and seven cents will round down to five cents and eight, and nine cents will round up to the nearest ten cents. With multiple transactions and the application of sales tax, regardless of the initial product price, the final digit becomes random. Thus, the average rounding over the course of several transactions becomes zero.
The Desjardins Group mentioned that they looked at world experience to find out whether inflation occurred following removal of the one-cent and two-cent coins in New Zealand and Australia. They found that there was no inflation. The deputy governor also indicated that the Bank of Canada does not expect any inflation as a result of the elimination of the penny.
[Translation]
Senator Poulin: Mr. Dupuis and Mr. Aubry, I thank you for appearing here today. As the committee chair was saying, the credibility of Mouvement Desjardins precedes you, not only as a financial institution, but also as a research centre. It is clear that the conclusions of your research and your recommendations will have some sway in the decisions that the committee will make on the recommendations to make to the government.
Mr. Dupuis, I will ask you the same question I asked Mr. Chande. In your research, I see no references to research done on the retail sales industry.
Mr. Dupuis: In fact, we did not do any in Canada because live simulations were done in other countries. In the United States, I know that several experiments showed the same results. We did not want to redo them because we felt that it was close enough and in keeping with our reality.
Senator Poulin: You spoke of symmetrical rounding of prices. Could you explain that concept?
Mr. Dupuis: If the total amount of a transaction after tax is $22.22, it would be rounded off to $22.20. We always round off to the closest five cents, whether it is up or down. If the total is $22.23, it would go up to $22.25.
In theory, the average becomes symmetrical and experiments have shown that. Sometimes the rounding is done downwards, because merchants want to give the benefit to customers. That is a marketing aspect. At best, it is symmetrical, and perhaps at the end of the day, there may be rounding in favour of the consumer.
Senator Poulin: Mr. Dupuis, you stated that the change would be easily implemented. Could you sum up for us the way in which you see the implementation of such a change?
Mr. Dupuis: The change is simple compared with what we have done in the past, including the introduction of the GST or the free trade agreements. We would have to develop a timetable for action spread over six or nine months and say that at the beginning of a given year, we would progressively take the penny out of circulation.
There are several ways of doing things. Some countries did things differently. Some set up a price control agency whereas others let the market find its own level for merchants and consumers. There are several ways to proceed, but in the end, it is a problem that will become relatively simple once the government has properly explained the merits of the project.
Senator Poulin: It looks like Mr. Aubry wants to add something.
Mr. Aubry: Yes. I would like to point out that the idea of a communication program is very important. And what I wanted to mention as well on your question is that the Central Bank of New Zealand set up an Internet site which contains all of the press releases, and all of the dates regarding the change.
It shows all of these stages involved in the transition. It is like looking at a recipe book. It is very well done, and what is more, the site also has a large FAQ section for the general public. I would invite people to look at the site.
Senator Poulin: What is the Internet address of the site?
Mr. Aubry: I will give it to the clerk. It is a Central Bank of New Zealand host site and it is very well designed.
[English]
I would like to add a point about the mining industry and the demand for metal. When we look at our total cost, which is $130 million and increasing, the cost of metal represents, at most, $5 million of the $130 million. It is less than 5 per cent, which goes back to Professor Palmer's point. Do we want to impose a tax or subsidy to pay $130 million to maintain a $3 million order for metal?
All other costs are very important. It would be a different dynamic if the cost of the metal was 90 per cent of the total cost, but it is the inverse in this case.
The Deputy Chairman: Am I correct that the metallic content of the penny is approximately 94 per cent steel, 1.5 per cent nickel and 4.5 per cent copper?
Mr. Aubry: Yes. The Royal Canadian Mint has moved to a cheaper product over the years. The main content of the penny is now steel.
The Deputy Chairman: What we commonly referred to as a "copper'' is not copper?
Mr. Aubry: It is not; it is only plated.
Senator Runciman: Professor Palmer, I was on your website and noted one area you did not reference. I am not sure how significant it is. You talked about the concern of Tim Hortons and some smaller organizations about theft in transactions. Have you received any feedback from them in this respect and their degree of concern?
Mr. Palmer: The senator is referring to an earlier draft of my opening remarks. I mentioned that an employee at a coffee establishment — it was not Tim Hortons by the way — said that their prices were set so they are never even. The reason for this was that the employer suspected if prices came to the nearest dollar, customers would give the clerk a dollar and the clerk would not ring it in, but simply put the dollar their pocket. If the clerk had to make change, they would have to ring in the purchase.
I was told this by some employees at one establishment. I have not seen any reference to it anywhere else, and I removed it from my final opening remarks.
Senator Runciman: In your involvement of 20 years, is there any business organization that you are aware of that has expressed concerns? With respect to the jar for pennies, I know that for Tim Hortons, those donations go toward charitable efforts that the company sponsors. Have any Canadian organizations or small businesses expressed concern about moving in this direction?
Mr. Palmer: The major one that I worked with was The Arthritis Society, which was also collecting pennies. Again, they used the campaign to their advantage to collect — if Palmer says get rid of them — and I was happy to work with them on that.
Senator Runciman: I am curious about why this has not happened in the 20 years of your experience, if it is so positive and we are not hearing any negatives. We received a lot of media attention at our hearing last week. I have not had any emails in response to all that media coverage, negative or positive, so I am not sure why it has taken us this long to get to this point in time. What kind of feedback have you had over those years?
Mr. Palmer: Most of the feedback I have received over the years has been, "I do not really care that much.'' However, as prices continued to rise since 1990, when I first started writing about it, people began to care more. We see more of the penny pots next to the cash registers than we did in 1990, so people are beginning to sense that they do not want to carry these things around.
I received an email the other day from someone who said — because I had to miss another event to be here — go and tell them to get rid of the penny; the pennies are nothing but shrapnel sitting on my dashboard. That is an interesting thought because what happens with many people when they go to a drive-through at a fast food restaurant is they get change and set it down someplace in the car.
That is probably a better way of characterizing how people feel about it. They would like to get rid of it but they do not care a lot.
Some of the people who have expressed concerns have asked, "What coin will have a maple leaf on the back?'' Here I defer to the Desjardins Group's study. If Canada were to move to bringing back even the half dollar, we could put a maple leaf there very easily and satisfy a lot of concerns about our heritage and the attachment we all feel to the maple leaf.
Senator Runciman: That could be the answer. I know from reading the Desjardins report that, while you have focused on the penny because that is our focus, you also talk about other coinage, even a five-dollar coin. That new song about the pants on the ground could be the theme song if we go to all this coinage.
Is there a real advantage to Desjardins Group and other financial institutions to lessen cash transactions and look at debit and credit cards? Over the long haul, if you look at all the initiatives that you are talking about, it clearly has a positive benefit for your sector as well, I assume.
Mr. Aubry: For financial institutions, the coin is a cost. For them, it is not a huge thing but they prefer to rationalize. They will put it in their fees to users anyway. However, it is interesting that at the same time as our study mentions dropping the penny, we say add another denomination at the end. It is not the idea of one financial institution wanting to make more profit. The objective was to increase the total welfare of society.
I have one point about your first question. I have done many presentations to seniors about our monetary system. There is something magic about money; there is a lot of concern about many things. It is important to give good information to citizens because it does not take that much to derail the process by creating fears and so on. Many people are afraid that discontinuing the penny will be the beginning of something bigger and that the retailer will profit and take away from my pocket as a consumer. The best tool we have is good communication and putting good figures in the market.
Senator Runciman: Mr. Chande, you talked about a new denomination structure, if we were to create one. Have you looked at the euro? They did create a penny. Why did they move in that direction?
Mr. Chande: I have not looked in much detail at that matter. I brought that up to illustrate taking a moment to step back and think. We are stuck within something and there is resistance to change, so just step back for a moment. If we were in a situation where we started this process again, what would we use as our smallest denomination? If it is not the penny, why would we keep it at this time?
However, I would defer to my colleagues with respect to the experiences with the euro because I have not done much research on that topic.
[Translation]
Mr. Dupuis: I studied the euro. It is a specific case. Unlike other countries that tried to optimize their system of bills and coins, the euro was put together by 12 countries with 12 different currencies, and the complex nature of the exchange rate, when the euro was created, was such that they ended up with — if I remember correctly, you also have it in the second study — 15 bills and coins, including the famous euro penny, which is equivalent to Canadian penny. Some countries like Belgium and Finland tell people not to use the euro penny. We see that people are uncomfortable using the coin, but it was really the complex nature of creating the euro, when all the exchange rates were converted, which led them to create too many coins. Ultimately, once they have resolved the current problems, we may see them reducing the number of coins and bills.
[English]
Mr. Palmer: In the Netherlands, even though they use the euro, they no longer mint the one-cent and two-cent coins. Several Scandinavian countries have also gotten rid of their lowest denomination coins.
Senator Marshall: The testimony on the penny has been fairly consistent. It seems that everyone is supporting retirement; as Mr. Palmer said, it should have been retired 20 years ago.
What would be your opinions on retiring the five-cent piece at the same time?
Mr. Aubry: I think there should be a bit of time in between. In New Zealand it was about 15 years, maybe shorter. One thing I find fascinating in the New Zealand case is that when they polled people about getting rid of the five-cent coin, 68 per cent of the population was in support. That means the first step went very well.
With money, confidence matters. I suggest that we withdraw the penny and in three or five years do another study on the five-cent coin. I have no doubt that, at that time, it will be time to get rid of the five-cent coin.
As I mentioned in our second study, it is important to have an overall look at the coins and notes and a long-range plan because we also would like to reduce the size of the coins. It should be very well planned because all the distributing machines will have to be adjusted as well if we change the size.
It is a matter of planning a public program. We know the five-cent piece is practically there, but it should be three or five years down the road.
Senator Marshall: I agree that it seems that by deciding to retire the penny, it is almost like we are tinkering with the system as opposed to restructuring or making the system better.
I would be interested in Mr. Palmer's opinion on retiring the nickel at the same time as the penny. Following your 20 years of lobbying for the retirement of the penny, once it is retired, will you move on to the nickel?
Mr. Palmer: As a matter of fact, in my initial article 20 years ago, I also recommended getting rid of the nickel.
Senator Poulin: Would that increase the value of the big nickel in Sudbury?
Mr. Palmer: Probably. The reason I did that was because of purchasing power. This is just simply thinking inductively from my own experiences, that in 1990 a 10-cent coin would buy less than what a penny had bought before. It seemed to me reasonable for us to start thinking about doing everything in terms of one decimal place instead of two decimal places. At the same time, if we get rid of the nickel, it would be smart to get rid of the quarter as well. Why not bring back the half dollar? Think about what it was like in my childhood. We would have a dime and a 50-cent coin instead of a penny and a nickel. We would have a dollar instead of a dime and we would have a two-dollar coin instead of a 20-cent coin. I am just applying the rule of 10 and thinking about what the rate of inflation was roughly like. It makes sense to me to eventually move in that direction. Unlike Desjardins, I see no reason to bring in a 20-cent coin. We can get by with dimes and half dollars, if we bring in a half dollar.
Senator Marshall: Do you think it would be too disruptive if the government were to retire the penny and the nickel at the same time?
Mr. Palmer: There is no question that it would be disruptive, and I think there would be much more political resistance. Mr. Aubry has done a good job of explaining that it is probably wise to ease into this, the same way we eased into having a one-dollar coin and then a two-dollar coin.
Senator Marshall: Eliminate the penny and then lay out the long-term plan?
Mr. Palmer: Yes. Mr. Aubry mentioned, when we were talking before the meeting, that one way to assess how much you value a coin is if you are walking along and talking with someone, would you stop and bend over to pick it up? It was an excellent suggestion. Even if I were walking alone and not talking to someone, I would not stop and bend over to pick up a penny, but I might consider picking up a nickel. In that case, maybe I am not quite ready, from that perspective, to get rid of the nickel.
Mr. Chande: I did a quick, back-of-the-envelope calculation regarding breaking stride and bending over to pick up a penny, and it says that if it takes more than two seconds, it pays less than the average wage in Canada. If it takes more than two seconds, it is probably not worth it.
Senator Eggleton: I am not sure I buy all the cost estimates that are presented. Regardless, I am in favour of getting rid of the penny. In fact, I do not like coins in general, but that is another issue.
One area, though, where Canadians do seem to watch the penny closely is at the gas pumps. In fact, they watch fractions of a cent at the gas pumps. If one station is advertising 95 and three tenths, and the one across the street is 95 and seven tenths, they will beat a path to the three-tenths station.
How would you handle this situation at the gas pumps? Would you even out the price to the nearest five-cent denomination at the base price, or would you do the rounding off, up or down, after the total calculation? In other words, if you stay with a tenth of a cent and it comes out to $50.26, would you then round it up or down at that point? How would you handle the gas pump situation, the sensitivity that Canadians have about the fraction of a cent at the gas pumps?
Mr. Palmer: In Australia, when they got rid of the one- and two-cent coins, the gas stations continued to set the prices as they had before and credit cards were charged to the nearest one cent, even though the one- and two-cent coins no longer existed. Since most people were paying with credit cards, it did not matter. People who were paying with cash often tried to run the pump until it came to 22 cents so it would be rounded down to 20. People tried to make an extra two cents if they were paying cash. However, not many people did that because most people pay for gasoline with a credit card now.
Senator Eggleton: That has worked generally well, then, in Australia.
[Translation]
Mr. Dupuis: You could also enact legislation to have machines round up to the nearest five cents. They round up to the nearest penny. One day, perhaps gas pumps will round up to the nearest five cents, which will solve the problem.
[English]
Senator Eggleton: Let me return to my comment a few moments ago about coins in general, which I find a nuisance. The Americans, the most powerful economy in the world, have a paper dollar. I am told that it is probably cheaper to have the loonie and the toonie than it is to have the paper equivalent. I cannot see it being much different. Would not the Americans have already gone in that direction? Obviously from a cultural standpoint, if not from a cost standpoint, they still prefer to have that piece of paper. Is that not something we should be further considering to cut down on coinage?
Mr. Aubry: The U.S. has a very different political system. It is difficult, for example, just to move from a one-dollar bill to a one-dollar coin. The experience we had in Canada with the one-dollar coin is basically that we end up with a greater use of one-dollar and two-dollar coins to pay for public transportation, to use at distributing machines and so on. The consumer was happy to use them more.
Despite the fact that it is a powerful economy, I think the U.S. is making an error by keeping the penny. There is a lot of pressure there and many business cases have been made for doing so, but politically it is a file that is difficult to move in the U.S.
Mr. Palmer: As you may recall, the U.S. brought out the Susan B. Anthony dollar about 25 years ago, a coin. At the same time they brought that out, they did not retire the paper bill, which was probably a strategic error on their part. The U.S. does not always get things right.
Senator Eggleton: However, I would certainly agree. I prefer paper.
Let me ask you a historic question. Did we ever have a denomination less than a penny? Did we ever have a halfpenny in Canada?
Mr. Dupuis: Not in Canada, but in the United States about 150 years ago.
Senator Neufeld: I want to go a little further with Senator Eggleton's questioning. Mr. Chande, you told us how much pennies weigh for each year of production. Do 100 pennies weigh the same as a one-dollar coin?
Mr. Chande: I would suggest that 100 pennies weighs a lot more than a one-dollar coin.
Senator Neufeld: You do not know, though?
Mr. Chande: I do not know. Why do you ask?
Senator Neufeld: Simply because it costs a lot to transport all coin around. I will return to what Senator Eggleton spoke about. It does not matter what kind of coin you are talking about; it costs a lot to move it around.
Mr. Chande: By removing the penny, it does not increase the amount of loonies that we need to produce, so that will not change. You have to remember that almost half the production of the mint is the penny. As has been shown in New Zealand and Australia, you do not need to produce more coins because you remove the penny. All we will do is reduce transportation of 2,000 metric tonnes of coin around the country.
Senator Neufeld: I do not disagree with that. All I am saying is that it costs a lot to transport one-dollar and two- dollar coins around the country, just the same as it does with pennies. If we look at the U.S. — and I am not saying they get everything right — they still use the dollar bill — the greenback, by the way — and I think that is probably the biggest reason. In any event, they still use the one-dollar bill.
I dislike my pockets being torn out constantly because I have a one-dollar or two-dollar coin. When I go through airports, I have to constantly pack coins into my briefcase and then dig them out later so I can put them in a coffee can at home and at some point in time roll them and take them to the bank. That is an area I want to explore.
Mr. Dupuis, you said that the penny lost 95 per cent of its value. Is that on the face of it or have you calculated in the cost of the penny? How did you come up with 95 per cent?
Mr. Aubry: Basically, the Bank of Canada looks at the Consumer Price Index and how much it has moved. It has moved up by a factor of 20. The purchasing power went down by 95 per cent.
Senator Neufeld: You talked also, Mr. Aubry, about the recycle program. The recycle program would still have to be in place because you are talking about even more coins yet. Would that be correct?
Mr. Aubry: In that sense, I think the recycle program is good because it deals with the hoarding; it reduces part of the cost. I still have the problem that the penny is not used. Consumers do not use them. That is my major problem.
Senator Neufeld: I asked the mint a question about the recycle program, whether it would be better done in the banks as that is usually where the coins are counted and transacted. They said it is for all coins, not just pennies. You dump everything into a machine.
The Desjardins Group suggests replacing the five-dollar bill with a coin. I shudder when I think of that. As the Government of Canada now and I think the government of Australia move towards using a different type of paper for currency, would it not make sense, in transporting tonnes and tonnes of material around, regardless of what denomination it is, if in fact this new paper works better, to go back to a one-dollar bill? Discard the two-dollar bill if you want, but at least go back to a one-dollar bill and keep a five-dollar bill rather than having more coins. I know coins last longer than our present stock, but with the advent of technology we have new paper we can use. Would it not make sense to rethink that process? In the last 20 or 30 years, we have been talking about getting rid of coins. We cannot seem to get away from coins. Why does your group not suggest going back to paper and save the environment and a great deal of money? A lot of coffee tins would not be full of coins.
Mr. Aubry: I have two points. The fact that we can produce low-value notes that are more durable at a decent price will help to keep the notes in circulation longer. In our cost benefit analysis, we should take account of that information.
If we drop the penny and the nickel and have a five-dollar coin, there will be far fewer coins in circulation. If you reduce the size of the coin, the weight in your pocket will go down.
I agree with you; we can reduce this weight further by getting back to one-dollar and two-dollar notes. However, you still have to pay for the distributing machines and so on. Remember the cost benefit analysis was strongly in favour of the coin because the coin lasts 25 to 40 years, while notes have to be replaced practically every year. The cost was 7 cents per year for a note versus 25 cents for 30 years for a coin. It generates a huge benefit. As I mentioned before, the demand for the coin by the public was far greater than the demand for the paper note because of the distributing machines.
Senator Neufeld: I do not disagree with that, because that was the rationale at that time because they were talking about a different type of paper that would last a lot longer.
I do not know anyone who says, "I want more coins in my pocket.'' I have not had one person tell me, "I want a five-dollar coin in my pocket, along with the two-dollar coin and the one-dollar coin and other change.'' Do not get me wrong; I would just as soon get rid of the penny and the nickel. With your expertise, I would appreciate it if you took the time to review that aspect and perhaps come back to us and say, "Look, we would be better off with this new paper money,'' if in fact it works as it is suggested to work, "and getting rid of one- and two- and five-dollar coins.'' You scare me when you talk about five-dollar coins. I will have to drink more coffee and get more coffee cans, because that is exactly where that stuff goes.
Mr. Aubry: We do advocate strongly reassessing periodically. If, for example, payment conditions do change, you have to take that into account. If the price of notes comes down, you have to include that in the cost benefit analysis. Plus, the change in people's taste must be taken into account.
The mint tried to stimulate use of the 50-cent coin and it did not succeed; people did not want it.
Senator Callbeck: I want to get at the total cost to the Canadian economy if we continue to use the penny. The study done by Desjardins and there is a table, plus the information we received puts the cost at $131 million, which includes the cost to the producer, financial institutions, retailers and consumers. Mr. Palmer, in the information that you passed out, you said $20 to $25 million, but those are transaction costs alone.
Mr. Palmer: Remember, too, that I biased that downwards so that I would not overstate the case for getting rid of the penny. That was just the transaction costs, the waiting cost for the consumers. The other thing to keep in mind when I calculated that was that I did not take into account the time of the people waiting behind someone who says, "Wait, I have three pennies here somewhere.'' When I was calculating the waiting costs, it was of the person using the pennies themselves. If one person is using the pennies and there are two or three people behind him or her having to wait while that person counts out the pennies, then there is waiting time that gets multiplied by all these other people as well. It does not take many people like that to make these costs go much higher than the costs for consumers listed in the Desjardins study.
Senator Callbeck: In that Desjardins study, do you think that figure of $131 million is reasonable?
Mr. Palmer: I think it is probably an underestimate. In their study, they had costs for consumers at $40 million. I biased my study downward. I said $20 to $25 million for consumers. I think this is probably a rather large underestimate.
Senator Callbeck: Of the studies that have been done, is this the highest estimate we have seen?
Mr. Chande: It is probably the lowest we have seen in terms of an estimate for total cost. I think it is the most conservative approach, based on the way you allocated the fixed costs of the mint. Remember, there is the mintage cost, how much the metal costs going into it, but there are all these other costs, including depreciation on the machinery, that need to be allocated. Depending on the method of allocation, they chose a very conservative approach to create these numbers. My numbers with Dr. Fisher and I were three times larger than that due to the method of allocation. You can see a range. It basically gives you a boundary to look from, a very conservative estimate up to an estimate that is not as conservative but potentially realistic.
Senator Callbeck: Do you have a breakdown of your figures?
Mr. Chande: My total costs, not including the time cost of consumers waiting in line, based on how we allocated it, was $33 million a year for the penny. This is based on 2001 mintage production levels; $33 million versus $11 million. This is just the $11 million relative cost for the government. My estimated cost for the government was about three times that amount. It gives you a boundary or range because we do not have exact numbers provided by the mint. We cannot access the calculations from the mint. We can only estimate based on available information. That provides a range from which you can consider these costs. Whether the cost of production is $11 million or somewhere along the way to $33 million, the cost to produce the penny is larger than its value.
Senator Callbeck: You feel it is above 1.5 cents?
Mr. Chande: Yes. I think the cost of production is between 2 cents and 3 cents.
Senator Callbeck: Did you see the transcript of the witnesses' testimony from our last hearings?
Mr. Chande: I did not see the transcript, but I know the people who appeared.
Senator Callbeck: You estimate the cost of production at between 2 cents and 3 cents?
Mr. Chande: Yes, I do.
Senator Callbeck: Has anyone else any comments on the production cost of the penny?
Mr. Aubry: I looked at the last transcript. The number in our study — 1.5 cents per penny — is similar to the cost mentioned by Wayne Foster from the Department of Finance Canada. Again, it is only a fraction of the total cost.
Beyond the $20 million cost estimate for financial institutions for deposits and withdrawals, 9 billion coins are being processed. Basically 25,000 tonnes of pennies per year are transported. Not only pockets are impacted.
Senator Callbeck: The transcript indicates that 60 per cent of the cost of the coin is for the metal, or about 85 cents. The cost for manufacturing is about 50 cents and distribution is in addition to that.
Which amounts increase in your study to get to the estimate of $2 to $3?
Mr. Chande: Fixed costs are allocated. Material costs do not increase; it is the other fixed costs that we allocated.
We took the amount of money transferred by the Ministry of Finance to the mint based on their annual report. Part of that amount is allocated to the penny. How to allocate the fixed cost of the penny became the debate. We said the penny represents X percent of total production. The penny represents the lion's share of production and we gave it the same percentage of overhead costs. This is how we arrived at our number.
Senator Dickson: A couple of questions arise from questions asked by other senators. I take the consumer's perspective.
I do not know what position the banking industry takes on rounding, but retailers say they are rounding. What will be the cost savings to financial institutions in Canada as a result of there no longer being a penny? Your report notes that it will be in excess of $20 million.
Mr. Aubry: There will be a savings of at least $20 million. We hope they will consequently drop their fees.
Senator Dickson: That is where I was heading. Mr. Dupuis, will you drop your fees?
[Translation]
Mr. Dupuis: If the costs are lower, in theory, all institutions will reduce them. That is how competition works. The same is true for rounding up. If merchants could round up, they would do it. They do not do it, because of competition. If financial institutions save money, prices should probably go down, because it is extremely competitive. A total of $20 million in operating costs for all Canadian institutions is a small amount.
[English]
Senator Dickson: It is a small amount from a bank's perspective. Some costs to retailers such as accounting would also likely be reduced. Desjardins is a leader in the financial industry. Will you be a leader and reduce fees or will you be a follower and increase fees or stay the same if others take the lead?
Mr. Dupuis: I guess we will be leaders.
Senator Dickson: You will lead in reducing fees.
[Translation]
Mr. Dupuis: A reduction in costs will apply to the margin.
[English]
Mr. Aubry: What is important for retailers is that they will order less coin because pennies will not exist. The cost to purchase a roll of pennies is sometimes 15 cents or 30 per cent. Orders of coins will decrease resulting in an automatic savings for the retailer.
Senator Dickson: I appreciate that. I could follow up with another question about whether we should be moving more toward a cashless society. I will not go down that road.
I read recently in a newspaper the results of a public opinion survey. Approximately 50 per cent no longer want the penny, 38 per cent want the penny and 20 per cent are undecided. Have you any comment on that?
[Translation]
Mr. Dupuis: When we started talking about the benefit of eliminating the penny in Quebec in 2005 and 2006, the result of a survey showed that people were in favour of doing that. At one point, 80 per cent of people agreed. The more we explain the positive outcomes, especially for customers, the higher the percentage will go. As Mr. Aubry said earlier, there is a lot of misinformation out there at present. Consumers are somewhat confused about the consequences of retiring the penny, especially in terms of inflation and the possibility that this would be to their detriment. Once we have clarified that there will be no inflation — as the representative from the Bank of Canada stated last week — I think that fears will abate. You will see the percentage of people in favour of retiring the penny increasing in the rest of Canada, as happened in Quebec.
[English]
Senator Dickson: Considering current public opinion of politicians and the banking industry, which institution should lead the charge to address public opinion, assuming the government recommends elimination of the penny? Has the financial industry a role or, for example, would it be the Consumers' Association of Canada?
Mr. Aubry: In New Zealand, the government — the central bank and department of finance — took the lead with significant support from financial institutions and retailing enterprises. Government knows the numbers so it is up to the government to publicize the true costs and the business case. The Bank of Canada has a lot of credibility in talking about inflation effects and so on. The government should have a communication plan. I am sure others will follow.
Senator Dickson: My recollection from previous witnesses is that an internal study on elimination of the penny was done by the Bank of Canada in 2005, which was not made public. An application was made in 2007 under the Freedom of Information Act and the study was made public. Have any of your gentlemen read that study and would like to comment?
[Translation]
Mr. Dupuis: We have received several studies under access to information, but I am unaware of the study you are referring to specifically. I do not recall having received any studies from the Bank of Canada on the issue. We have studies from the Department of Finance and from the Royal Canadian Mint, but not the Bank of Canada.
Mr. Aubry: The Bank of Canada had internal memos on inflation. Last fall, journalists reported that a penny cost more than a penny to produce, because people had heard that the cost of production was under a penny. Suddenly, the figure of 1.2 cents appeared in the public, whereas during Senate committee deliberations last Thursday, the cost of 1.5 cents was mentioned.
The Bank of Canada's role is to talk about inflation and price increases. The Department of Finance, the Mint, and the Bank of Canada consult other countries. They hold discussions with other departments of finance, other producers of coins, and other central banks.
I found the Central Bank of New Zealand to be very open about what happened and what the effects of change were. But at the end of the day, the government has the official figures, and makes the decision and must show leadership.
Mr. Dupuis: I would also add that when we stop producing the penny, we will free up a great deal of production capacity for other coins abroad, which may well be better for the government and for the Royal Canadian Mint.
That is the way we need to look at it. It will not be a loss for Winnipeg or for employees. On the contrary, with the advanced technology the Royal Canadian Mint has and with plating of coins, this represents a good opportunity. I think that it is time for Canada to proceed because it can compensate and make money.
Mr. Aubry: It is interesting to note that the Royal Canadian Mint produces coins for New Zealand.
[English]
Mr. Palmer: Like Senator Dickson, I am probably more of a representative of the consumer interest here, and that is why my calculations were based on costs to consumers rather than all the other costs that are piled on top of those.
I suspect that every one of us has a friend who, when we talk about getting rid of the penny, says, "The retailers will just rip us off.'' I have friends who have PhDs, although not in economics, who say exactly that. I explain to them that the evidence shows that prices will not go up.
If I say that we need government studies or government public relations to show this, they do not trust the government. That is why I am a bit of an activist in this field, to get this information out from someone who does not have an axe to grind, other than wanting consumers to be better off.
The Deputy Chairman: There being no further questions, I would like to express the committee's great appreciation to the panel for appearing today. Your comments have all been very helpful and informative.
Mr. Palmer: If I might, I am very grateful for this opportunity because several things have emerged of which I was not aware. First, I had no idea that it is cheaper to make a washer from a penny than to buy washers at the hardware store. That is fantastic.
Second, until I read the transcripts of your last meeting, I had no idea of the cost of using coin machines. You can bet that I will never again roll pennies.
The Deputy Chairman: On that note, this meeting is adjourned.
(The committee adjourned.)