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Extra Credit: In Canada, the penny's about to drop into history Márcio Padilha College of Southern Idaho ECON 201 – Pohonka Spring/2012

Extra Credit In Canada, the penny's about to drop into history

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When looking at purchasing any given good or service, there is a cost-benefit ratio analysis that takes place immediately in everyone’s mind. Although the factors affecting the final decision are likely to vary from individual to individual, there is a probably universal common pattern of behavior in that no person is likely to wonder about what the cost of producing the currency they are considering to spend is. As per its definition, “money” is “any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socioeconomic context” (Mishkin, 2007). As such, it mainly functions as a “distinguished medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment (Mankiw, 2007)” which is exercised via “currency,” which is the “medium of exchange (Bernstein, 2008).” Besides creating, and expressing, the central idea of value, money itself becomes an integral part of the economy in that it is a manufactured good whose integrity must be protected against counterfeiting as well wear-and-tear; thus, creating the need for skilled labor and technology. In addition, any nation’s money supply comprises a variety of commodities such as cotton, different metals and plastic which are subject to market value fluctuations that may, in turn, affect the cost of production in such a manner as to surpass the face value of the item in question. According to the article entitled “In Canada, the penny's about to drop into history” (Associated Press, 2012) the production cost of Canadian penny is 1.5 Canadian pennies; reason why Canadian authorities allege it is fiscally contradictory to produce currency at an

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unexpressive denomination whose production cost is greater than its face value. While mentioning that production would cease on the Canadian penny, Canadian authorities maintain that existing pennies would be progressively phased out of the market; i.e. worn coins would be removed from circulation over the years. The article goes on to mention that New Zealand, Australia, the Netherlands, Norway, Finland, Sweden and others "have made smooth transitions to a penny-free economy in order to save on currency production costs” (Associated Press, 2012). I believe, nonetheless, that there are concurrent issues at hand. While halting production on an item which costs more than the value it represents makes sense fiscally, it also carries the implied perception of devaluation in that in that the value of one hundredth of one whole unite of the Canadian Dollar has become so inexpressive as a representational measurement of value that maintaining its own existence has become a socioeconomic burden. Nonetheless, I believe that phasing it out rather than just removing pennies from the Canadian economy plays out as a well-thought political strategy in that it gives time, and probably a very long one, for people to get used to the idea as a sudden shock of removing the pennies might have adverse political effects. After reading “In Canada, the penny's about to drop into history,” I also remembered that in Lech Wałęsa’s immediate post Solidarity period, coins in Poland were made of plastic while in China “coins” are made of paper, i.e. fractions of the Yuan are actually smaller paper bills; both to reduce production cost. Thus, on a different yet related point of view, I decided to check on the status of the of American Dollar and, as per a report published on Copper Pennies (Cost to make a penny, 2012), it costs 2.41 cents to mint every cent in the United States, which creates an

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interesting paradox that is even more perplexing than the one currently experienced by the Canadians: the production cost of 1 US penny is 2.41 US pennies yet, to my knowledge, there is a relative silence in the United States about the issue which seems to contradict the American Neo-Liberalist Economic Model viscerally, begging the question: why is producing 1 US penny worth paying for 2.41 more than its face value when this face value, one hundredth of 1 US dollar, seems really so inexpressively economically? Although this is a totally anecdotal inference of mine, I would say that this is an expense the US government takes on gladly, and quietly, in order to avoid internal political unrest which would likely affect its economy. In fact, I am sure the weight of this production cost must be levied against some other revenue mechanism, i.e. federal income taxes perhaps. As a rather experienced international traveler, I remember a time when US dollars were the international standard currency. Nowadays, nonetheless, while US dollars are still widely accepted, they are no longer either prime choice or prime exchange rate. Nonetheless, because there is an uncontestable lack of interest for international news in the United States, I feel as if, domestically, Americans are disconnected from this reality. Thus, speaking in terms of the collective self-perception of the Nation in juxtaposition to the cost-value relation of the US Dollar penny, the sudden confrontation with the reality that their currency no longer pays for one of its own units would likely have intense perceptional effects on the psyche of the American social fabric which would, in turn, reverberate socially, economically and politically. I would imagine that, if the production of US pennies were to cease, many inconvenient social, economical and political realities would have to addressed and that would certainly change the developmental course of many current issues.

Extra Credit Works Cited Associated Press. (2012, 03 31). Business. Retrieved 03 31, 2012, from The Times-News: http://magicvalley.com/business/in-canada-the-penny-s-about-to-drop-intohistory/article_f68ea27a-50b0-5bbd-a945-36d8ff52c6d9.html Bernstein, P. (2008). A Primer on Money, Banking and Gold. Hoboken, NJ: Wiley. Cost to make a penny. (2012, 02 21). Retrieved 04 01, 2012, from Copper Pennies: http://coincollectingenterprises.com/copper-pennies/cost-to-make-the-penny-2011 Mankiw, N. G. (2007). Macroeconomics (6th ed.). New York: Worth Publishers. Mishkin, F. S. (2007). The Economics of Money, Banking, and Financial Markets (Alternate Edition). Boston: Addison Wesley.

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