Wednesday, April 09, 2008

Currency Issue Getting Really Fucking Stupid


Get rid of the $5 bill? Are you fucking shitting me?

When Winnipeg NDP Member of Parliament Pat Martin introduced legislation to abolish the penny, the response turned out to be a little mixed.

Some, recognizing the fact that hoarding issues make the penny fiscally more costly than beneficiary, supported the bill. Others, uncomfortable with the idea of rounding all the nation's economic transactions up (or down) to the nearest five cents, haven't.

Now, the economic "genuises" at Desjardins Economic Studies have suggested the Royal Canadian Mint do away with not only the penny, but also the nickel, quarter, and $5 bill.

So, not only does Desjardins think that all economic purchases in Canada should be rounded up or down to the nearest five cents, but should be rounded to the nearest ten cents.

At face value, it almost starts to make cents. (Fuck! That's not funny. Don't let it happen again - ed.)

"Canadians increasingly hoard low-denomination coins rather than use them to pay for their cash purchases," the report insists. "In fact, due to the resulting strong "artificial" demand, the RCM (Royal Canadian Mint) must produce more Canadian coins and cannot free up some of its production capacity to produce more lucrative foreign coins."

The report really demonstrates a near-complete ignorance on what the priorities of the Royal Canadian Mint should be. The priorities of the RCM should be to produce coins for Canada, not for other countries (although the export of coins for use in other countries does help to cover the cost of operating the RCM).

It also demonstrates an inability to see the bigger picture.

At first glance, it makes sense to abolish the penny when one considers the greater economic cost of producing the coins.

Desjardins issued a report last year which calculated that producing the penny costs Canadians $130 million per year -- approximately $4 per citizen.

Yet one also needs to consider the explicit costs of rounding product pricing up -- or down -- to the nearest five cents or, worse yet, to the nearest ten cents.

To start off, it's not terribly fucking likely that your local 7-11 will adjust the price of a Slurpee so that it can more effectively be rounded down. In all likelihood, they'll adjust prices so they have to be rounded up. It just isn't smart business to round prices down and incur an economic loss.

Even if they did, the firms that sell us the products we use on a day-to-day basis would likely incur staggering losses.

In either case, either the extra money -- in all likelihood adding up well in excess of $4 a year -- being coughed up by Canadian consumers or the losses incurred by those businesses that are altruistic (but ultimately foolish) enough to adjust their prices to be rounded down would represent a deadweight loss, which is always a social loss.

Money gone from your pocket with no return; money lost to business coffers, meaning less profit to distribute amongst shareholders -- most of whom are what Stephen Davis, Jon Lukomnik and David Pitt-Watson refer to as "citizen investors" (in other words, us).

Of course, there is the argument that the modern economy is largely electronic in nature, with most purchases being completed via debit or credit card. Thus, some would argue, the increased costs should only apply to those paying in cash, and that the extra expense is simply the cost of using cash.

The greatest impact, however, would be felt on purchases small enough that they would be costly to complete electronically (via credit or debit card) on a regular basis. Consider the cost of a large Tim Horton's coffee -- $1.38 a cup. When applicable taxes -- assuming one lives in a province with no Provincial Sales Tax -- are added, this coffee costs $1.42 a cup.

Rounding that cup of coffee up would cost -- assuming that the consumer in question only consumes one of these per day (not fucking likely in this country, they probably consume more) -- 1095 cents per year, or $10.95. (Duh - ed.) In the unlikely scenario that Tim Horton's agreed to round the price down, the firm would incur a loss of $7.30, compounded across all of their daily customers.

Remember that this is Canada we're talking about here. Tim Horton's coffee has become a staple of our culture.

The deadweight losses incurred are bad enough when only rounding to the nearest five cents. Imagine rounding that to the nearest ten.

Yep, this idea is that fucking stupid.

Of course, there are options that one can use to creep around these costs -- Tim Horton's, in particular, offers a new Quickpay Tim Card, and abolishing the penny would certainly give millions of people incentive to get one, pushing Canada's economy even further into the electronic realm.

Which would seem to take some of the bite out of the abolition of the penny, or (as the nearsighed dimwits at Desjardins favour) the dime.

But all this begs a question: why not just abolish all of Canada's bills and coins and really fuck over the people who prefer cash to debit and credit cards?

No question the banks would be in favour of that -- all of the interest they could charge to a new glut of credit transactions, and ATM and debit fees to beat the motherfuckin' band.

Which really makes you realize who the fine folks at Desjardins are really looking out for with this particular idea -- themselves, and their fellow bankers. Or, maybe even the six Jewish bankers who rule the world. (Not funny! - ed.)

So either the folks at Desjardins are really smart and think the rest of us are fucking stupid, or are really fucking stupid and just think they're being smart about this.

Readers should draw their own conclusions regarding that little riddle.

2 comments:

  1. Great. Now I'll have to tip the ladies at the ballet with $10 bills? I don't think so!

    ReplyDelete
  2. If Canadians are likely to lose more than twice what abolishing the penny would allegedly save on coffee alone, it makes absolutely no sense to abolish it.

    People with vested interests, however, are absolutely salivating right now.

    ReplyDelete

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