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Bank's penny thoughts

By Bucklys     Feb 18, 2007 in Politics
Eliminating the penny would cause little or no inflationary effect, and in some cases might cause prices to fall, says a draft report written for the Bank of Canada.
Prices frequently end in a "9" to create the perception that, for example, $9.99 is...
Eliminating the penny would cause little or no inflationary effect, and in some cases might cause prices to fall, says a draft report written for the Bank of Canada.
Prices frequently end in a "9" to create the perception that, for example, $9.99 is much cheaper than $10, says the draft. If the penny were ditched, merchants might post the price at $9.95, saving a customer four cents. "This would cause the level of the (Consumer Price Index) to fall," the draft suggests.
The Bank of Canada released the three-page internal paper yesterday following a call from a large financial institution for Ottawa to chuck the penny.
The Desjardins Group said that to speed the process, the Bank of Canada could publish research stating that killing the coin would have no inflationary effect. Consumers would feel reassured and the finance minister would feel comfortable making the change.
In releasing the paper yesterday, the Bank of Canada emphasized that it has no official thoughts on the penny. The paper was a draft written for internal use two years ago and was never adopted as policy, a bank representative said.
The findings, however, address a top concern raised by readers in a poll at www.thestar.com: that retailers would raise prices if the penny were dropped.
"Watch out – another way to pick your pockets," wrote Stephen McCahery of Brampton.
"If the bill says $7.01, businesses don't want to lose that extra cent," said Mark Fields of Brights Grove, Ont., suggesting a customer would pay $7.05.
First of all, says the Bank of Canada paper, eliminating the penny would not affect debit and credit card purchases.
In cash transactions, merchants would probably round off prices to the nearest nickel. Cash purchases ending in 3, 4, 8 and 9 would be rounded up. Those ending in 1, 2, 6 and 7 would be rounded down. The result would be neutral.
"Competitive pressures among retailers would be expected to eliminate any significant upward bias to rounding," the paper says.
As to the expectation that a price of $9.99 might drop to $9.95, the paper also gives a counterargument. Since sales taxes would be added, a posted price would not need to be rounded to the nearest nickel. Only the final price would.
Judging from the online poll, Canadians might already be prepared to stop spending a penny. Of 869 respondents, 56 per cent argued for taking the coin out of circulation, and some suggested how to do so
I think that the pennie should go threw all my years of being on this earth ive seen but no good and harm done to pennies. Whats the use noone even uses it, it always just ends up on the ground and thrown around. I think we should all bow our heads and have a moments silence for the passing of the pennie. "God Bless The Pennie."
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