Inflation’s Toll: Canada Goes ‘Penniless’

Canada’s one cent coin has been slated to be phased out of circulation, next year.

From CBCNews Canada,

The federal budget is guaranteed to leave Canadians penniless — literally.

Among the victims of cutbacks outlined by Finance Minister Jim Flaherty in the government's 2012 federal budget on Thursday is Canada's one-cent coin.

Citing low purchasing power and rising production costs, the government has decided to phase the penny out of existence starting this fall, when the Royal Canadian Mint will stop distributing the one-cent coin to financial institutions.

Over time, that will lead to the penny effectively becoming extinct, although the government noted on Thursday that one-cent coins will always be accepted in cash transactions for as long as people still hold on to them.

The value of the penny has decreased to about 1/20th of its original purchasing power. Indeed, the lowly penny has fallen so far that Ottawa described it as a "burden to the economy" in a pamphlet explaining the change on Thursday.

In part because of rising prices for the metals it's made of, it actually costs 1.6 cents to produce every penny. The government estimates it loses $11 million a year producing and distributing the penny, and that doesn't include the costs and frustrations for businesses and consumers that use them in transactions.

Canada’s penny originally had been 2 cent coin until replaced by the 1/100 penny.

Below exhibits the table which accounts for the historical evolution of the coin’s composition (from Wikipedia.org)

One would note that coin debasement started in 1970s—first through size and/or weight—and then through content in the late 90s. 

The burden hasn’t truly been because of “the costs and frustrations for businesses and consumers”, which has been used as a convenient scapegoat by media and the political agents, but rather from Canada’s inflationist policies.

Gold priced in the Canadian dollar began to appreciate during the late 90s coincidental with the initial overhaul in the composition of the penny’s content. (chart from Gold.org)

Gold’s priced in the loonie surged, during the last decades, has virtually been accompanied by another revamp or decomposition of the coin’s content

Canada’s vanishing penny represents a symptom of the political disease called inflationism via currency debasement.