Don't stop at the penny, Canada should scrap the nickel too, Desjardins says

Canada should do away with the nickel within the next five years but avoid getting rid of cash entirely, a new report from Desjardins said Tuesday.

The financial services company says despite an explosion in ways to pay other than cash in recent years, there's actually more Canadian currency in circulation than ever before. And that's not something that's likely to change anytime soon.

There's currently $80 billion worth of Canadian coins and bills in circulation, a figure that's growing by between four and seven per cent per year. That's despite Bank of Canada data that shows Canadians are using cash less and less often to actually pay for things — down to 43.9 per cent of all transactions in 2013.

The largest chunk of Canadian bills come in $100 denominations —  something which may come as a surprise to anyone who's ever tried to spend one. The bank says those bills are increasingly becoming a store of value, used by people who want to keep large amounts of cash on hand and outside the banking system.

"These bills are likely little used to purchase goods and services and are more likely used for hoarding purposes," economists François Dupuis and Hendrix Vachon wrote in their report.

Changes coming

The report stops well short of advocating for a cashless society but does suggest that some tinkering with our bills and coins is necessary.

As such, Desjardins says, the nickel may not be long for this world. Canada did away with the penny in the government's 2012 budget, and the reviews of that move have been largely positive as few people have missed it and it has reduced the cost of transactions for both businesses and governments.

Desjardins thinks it may soon be time to give the nickel the chop too. "The time will come when the nickel will have to be taken out of circulation," the report said. "We can already start planning for this change so as to see it materialize within about five years."

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Desjardins says Canada may eventually do away with the $5 bill in favour of a coin too, but new polymer bills have made that less likely in the near term.

The nickel isn't the only denomination on Desjardins' hit list. The bank has previously advocated for getting rid of the $5 bill in favour of a coin, but said in the report that the need to get rid of the $5 bill has been reduced since the advent of Canada's new polymer bills, which are far more long-lasting and therefore economically efficient for the government to run.

"The shift from paper to polymer bills lessens the need for this change, as it has substantially increased the lifespan of the notes," Desjardins said, but "eventually, the evolution of buying power could still justify changing to a $5 coin."

Down the line, Desjardins says the 25-cent coin should be replaced by a 20-cent version, and Canada will only have three coins worth less than $1: the 10, the 20 and a 50-cent piece.

The bank says there are a few advantages to ultimately moving to a cashless society but doubts it will happen in Canada anytime soon.

"Even though cash is in decline in Canada as a method of payment, in our view, it is very unlikely to vanish altogether over the next 10 to 20 years," Desjardins said. 

"It is likely not that simple to get rid of cash in a country, even without considering the drawbacks and harm it could create," Desjardins said.

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