Britain’s decimalisation is blamed for the high inflation of the 1970s. Is Canada now risking a round a price rises by abolishing its one-cent coin?
The Royal Canadian Mint has stopped stamping out the ‘penny’ coin; banks will take them out of circulation as they are paid in and businesses are being encouraged to round prices off to the nearest five cents.
When the UK decimalised its coinage in 1971, traders were accused of rounding up rather than down. That - plus the confusion of new money and the fact that six new pence sounds less than 12 old pennies when it is more - allowed price increases that made inflation endemic to the UK economy for a quarter of a century. By the late 1970s, inflation exceeded 25 per cent, which explains why the Bank of England’s sole target is still to control inflation – not growth, exports, employment or anything else.
In theory there are about 11bn UK pennies in circulation, worth more than £100m. In practice many of those have been lost down sofas and drains for ever.
The Canadian penny is worth 0.6 of a UK penny and costs more to produce than it buys.
Inflation devalues the coinage, of course. And the UK halfpenny introduced in 1971 was withdrawn in 1984 because it bought nothing and nothing was priced in fractions of a penny. Scaling up for inflation, that 1984 ha’penny would be worth 1.4p now, suggesting that the British penny should be abolished too. (Australia, New Zealand, Finland, and Sweden have abolished their equivalent of the single penny coin too.)
But Britain has a 2p coin, and if that stayed, prices would have to be rounded up by no more than 1p. Canada has no coin between the one and five cents. That could mean 4-cent price increases, which for, say, an 81c item becoming 85c, would be a price hike of 5 per cent in a country where annual inflation is just 0.8 per cent.
The Bank of Canada is thus taking a serious risk with inflation in allowing a round of big price rises on small-ticket items such as groceries.
The Bank of Canada’s governor, Mark Carney, is about to become governor of the Bank of England, of course. Technically, Britain’s central bank looks after the notes, not the coins, but if Canada’s elimination of the penny does cause inflation, the UK should not even dream of following.