ARCHIVED — Vol. 146, No. 26 — December 19, 2012

Registration

SOR/2012-264 December 7, 2012

CURRENCY ACT

Regulations for the Redemption of One Cent Coins

P.C. 2012-1622 December 6, 2012

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 9.01(1) (see footnote a) of the Currency Act (see footnote b), makes the annexed Regulations for the Redemption of One Cent Coins.

REGULATIONS FOR THE REDEMPTION OF ONE CENT COINS

Authorization

1. The Minister is authorized to redeem one cent coins that are or that have at any time been current in Canada.

Coming into force

2. These Regulations come into force on the day of their registration.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Consequential to the announcement of the elimination of the penny in the Economic Action Plan 2012, a regulatory authority is needed to authorize the Minister to redeem one cent coins. This would ensure an orderly withdrawal process and a smooth transition to a penny-free economy, while protecting the integrity of the coinage system.

Description: The Regulations for the Redemption of One Cent Coins (the Regulations) authorize the Minister of Finance to redeem one cent coins that are, or that have been at any time, current in Canada.

Cost-benefit statement: The present value of the estimated net redemption costs is $38.3 million which consists of

  • (i) Costs of paying the face value of the pennies redeemed ($53.3 million);
  • (ii) Less revenue from the recycled metal, notably copper and zinc ($42.5 million);
  • (iii) Plus operational costs linked to the redemption program ($27.4 million).

Based on experience of other nations, 6 billion pennies are estimated to be redeemed.

“One-for-One” Rule and small business lens: The “One-for-One” Rule and the small business lens do not apply, as the Regulations impose no administrative or compliance costs on business.

Background

In the Economic Action Plan 2012, the Government of Canada announced its intention to eliminate the penny from Canada’s coinage system. The decision was driven by the penny’s low purchasing power, its rising cost of production relative to face value, the significant handling costs the penny imposes on retailers, financial institutions, and the economy more generally, and environmental considerations.

At present, the Government’s cost to produce a new penny exceeds its face value by about 0.6 cents, resulting in an annual cost of about $11 million. Due to inflation, the penny’s purchasing power has eroded over the years and, today, it retains only about one-twentieth of its original purchasing power. In 2010, the Standing Senate Committee on National Finance undertook a broad consultation on the penny. In its final report, The Costs and Benefits of Canada’s One-Cent Coin to Canadian Taxpayers and the Overall Canadian Economy, the Committee recommended the removal of the penny. Desjardins Economic Studies also published a paper in 2007, Should We Stop Using the Penny?, in which it recommended the Government seriously consider removing the penny from circulation, given its limited usefulness.

The elimination of the penny includes two parts: (i) ceasing production and distribution of new pennies (the last penny was produced on May 4, 2012), and (ii) withdrawing and redeeming existing pennies from circulation (planned to commence on February 4, 2013), which will be undertaken on behalf of the Government by the Royal Canadian Mint (the Mint).

Canadians and businesses can redeem pennies for face value at their financial institutions, which will subsequently be withdrawn from circulation. The Mint will need to be reimbursed since it will be carrying out the withdrawal on behalf of the Government.

Issue

Consequential to the announcement of the elimination of the penny in the Economic Action Plan 2012, a regulatory authority is needed to authorize the Minister to redeem one cent coins. This would ensure an orderly withdrawal process and a smooth transition to a penny-free economy, while protecting the integrity of the coinage system.

Objectives

  • Maintain confidence that the penny will retain its value.
  • Support an orderly pace of withdrawal of pennies from the economy.

Description

Pursuant to subsection 9.01(1) of the Currency Act, the Minister of Finance is authorized to redeem one cent coins that are, or that have at any time been, current in Canada.

Regulatory and non-regulatory options considered

A non-regulatory alternative option would include refusing to pay for the returned pennies. This option has been rejected because, without a Government commitment to cover the redemption costs, Canadians might lose confidence in the value of the penny, and other circulating currency. This could threaten the integrity of the coinage system as the intrinsic value of Canadian currency is based on a high level of confidence in the currency system.

Benefits and costs

Base Year

Final Year

Total (PV)

Annualized Average

A. Quantified impacts (in Can $, 2012 price level / constant dollars)

Benefits

Government of Canada

$7,000,000

NA

$1,000,000

$42,556,980

$8,118,250

Costs

Government of Canada

$19,000,000

$0

$3,000,000

$80,832,334

$15,419,730

Net benefits

-$38,275,354

-$7,301,479

B. Quantified impacts (in non-dollars) [e.g. from a risk assessment]

Positive impacts

Government of Canada

NA

NA

NA

NA

NA

Negative impacts

Government of Canada

NA

NA

NA

NA

NA

C. Qualitative impacts

The present value of the estimated net redemption costs is $38.3 million, which consists of

  • (i) Costs of paying the face value of the pennies redeemed ($53.3 million);
  • (ii) Less revenue from the recycled metal, notably copper and zinc ($42.5 million);
  • (iii) Plus operational costs linked to the redemption program ($27.4 million).

Based on experience of other nations, such as Australia, 6 billion pennies are estimated to be redeemed.

As announced in Budget 2012, the estimated cost to the Government of supplying pennies to the economy is about $11 million a year. The Regulations focus solely on the costs and revenues of withdrawing existing coins from circulation, and not the savings associated with no longer producing them.

Time period: six years

Discount rate: 4%. As of March 3, 2012, the Government of Canada 10-year bond yield is 2%. An additional 2% premium is linked to the project given the uncertainty associated with the sovereign bond market.

“One-for-One” Rule

The “One-for-One” Rule does not apply as the Regulations impose no administrative costs on business.

Small business lens

The small business lens does not apply, as the Regulations impose no costs on small business.

Consultation

The Department of Finance invited stakeholders to submit public comments about the redemption of the penny from March 29 to May 31, 2012. Most comments received were in the form of inquiries, and respondents were redirected to the Department of Finance’s Web site where an information paper and fact sheets on the elimination of the penny are available. Questions that addressed whether Canadians can redeem their pennies for face value had already been considered in the development of the Regulations, which enable redemption.

Rationale

Allowing the Minister of Finance to pay face value and related costs for the pennies returned to the Mint facilitates the withdrawal of the penny, which will help maintain confidence in the Canadian currency system. Moreover, an efficient withdrawal process will ensure a smooth transition to a penny-free economy by allowing transparency and predictability into the process.

Allowing redemption of the pennies at face value also supports charities by allowing the value of redeemed pennies to flow to them. Charities have benefited from the withdrawal of low denomination coins in other countries as a unique opportunity for fundraising efforts.

Contact

Wayne Foster
Director
Financial Markets Division
Department of Finance Canada
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-957-2353
Fax: 613-943-2039
Email: wayne.foster@fin.gc.ca