A cabinet order this month gave Finance Minister Jim Flaherty the authority to pay financial institutions for the mountains of pennies they'll begin to return to the Royal Canadian Mint early next year.
In his March budget, Flaherty unexpectedly announced the demise of the one-cent piece, saying pennies cost too much to manufacture and are a nuisance to many Canadians.
The last new penny was struck May 4 at a Winnipeg plant. And starting on Feb. 4 next year, the mint will stop distributing any remaining stock and instead start collecting pennies from banks and other financial institutions.
Under the Currency Act, however, there was no mechanism to reimburse the banks for the rolls of copper and copper-plated pieces until cabinet passed an order-in-council Dec. 6 in order to "support an orderly pace of withdrawal of pennies from the economy."
The order will also compensate the Royal Canadian Mint for its handling costs.
The mint has stamped an estimated 35 billion pennies from metal plates over the last century.
"Based on the experience of other countries, the amount of pennies returned by the public should be a fraction of this amount, and be spread mainly over the next few years," said David Barnabe, a Finance Canada official.
The penny will remain perfectly legal tender even after Feb. 4, though the number in circulation will begin to decline sharply. Financial institutions have been given no deadlines for surrendering their one-cent coins.
A spokeswoman for the mint, Christine Aquino, says officials are still "finalizing the logistics" for the final disposition of the returned coins, though they are expected to be melted down and the metal recycled.
Under the Currency Act, only persons licensed by the finance minister are permitted to melt down coins, others face a penalty of a $250 fine and-or a maximum year in jail.
The federal government initially intended to stop distribution of pennies this fall, but postponed the process until February after pushback from retailers and small businesses, who wanted the jingling coins for holiday shoppers.
Flaherty also said he wanted to give charities more time to launch so-called "penny drive" campaigns, in which Canadians will be asked to donate their one-cent pieces to good causes.
As the coins are withdrawn, cash transactions will begin to be rounded off to the nearest five cents, but there are no government-imposed rules or policing. Electronic transactions, such as those on debit cards or credit cards, would still be registered in cents.
A spokeswoman for RBC Royal Bank says the bank, like other financial institutions, will stop paying out or issuing pennies on Feb. 4 and is working with the mint on the efficient "repatriation" of the coins.
"Unfortunately, due to the anticipated high volume of pennies delivered to RBC branches by the public and charities, there could be some incremental costs for delivery to the various RBC distribution centres for which RBC will not be compensated," Suzanne Willers said from Toronto.
The Royal Canadian Mint had been spending 1.6 cents to stamp out each one-cent coin, with the annual bill to government at about $11 million for production and other costs.
Many other countries have already withdrawn their lowest-denomination coins, including Switzerland, the Netherlands, Norway and Australia. The Bank of Canada in a 2005 study said that scrapping the penny would have little or no impact on inflation.
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