Purging the Penny – Is the Nickel Next?

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In a previous post, I examined the impact of central bank monetary inflation on the demise of the penny. Now, a former economist at the Bank of Canada is publicly calling for the removal of the nickel from circulation.


According to The Canadian Press:

The Royal Canadian Mint starts collecting one-cent coins on Feb. 4 for melting and recycling of the metal content, with some six billion pennies expected to be surrendered over the next six years.

Finance Minister Jim Flaherty announced the surprise demise in last year’s budget, saying the penny had become a nuisance to many Canadians.

A former Bank of Canada economist now says the nickel is also becoming obsolete, and should be next in line for retirement.

Jean-Pierre Aubry says more and more Canadians are hoarding the five-cent coin, forcing the mint to produce 230 million last year alone to keep them in circulation.

Why are Canadians hoarding nickels en masse? Because the coins are worth more than their legal tender face value.

This is an example of Gresham’s Law. It is the process by which an artificially overvalued money drives an artificially undervalued money out of circulation. In this case, nickels are artificially undervalued when compared to digits in a computer. Ultimately, this is yet another example of a shortage caused by a government mandated maximum price – of nickel coins, that is.

The Bank of Canada actively pursues an annual inflation target of 2% per year. This purposeful monetary debasement results in the loss of half our currency’s purchasing power every 35 years.

The penny is to be purged. The nickel could be next. Assuming that we safely sidestep the looming national security threat of pesky heaters, how long before our bills aren’t worth the polymer they’re printed on?

(Photo Credit Mona Billard)

 

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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