Will nickel follow penny out of Canadian coin circulation?

As the penny is set to begin retirement next month, there are already calls to put the nickel out to pasture as well.

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 by Canadians 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.

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

"We see less and less people now ... digging in their wallets for nickels," Jean-Pierre Aubry said in an interview. A retired 30-year veteran of the Bank of Canada, Aubry has been a leading proponent of withdrawing the one-cent piece from circulation.

In papers and presentations for Desjardins Group over the last few years, Aubry used economic models to show that the penny should actually have been killed in about 1982.

That was a tipping point, as more Canadians hoarded the coins and the Royal Canadian Mint was pressed to churn out billions more to keep retailers stocked, costing the government up to $11 million annually.

5-cent coins hoarded by Canadians

The last pennies minted on May 4 in Winnipeg were costing about 1.6 cents each to manufacture. Aubry also estimates retailers, banks and consumers have absorbed about $140 million in handling costs each year, creating an unnecessary drag on the economy.

Even though Finance Canada faces a one-time net cost of $38 million to retire the penny, the long-term savings to government and to the economy will be substantial.

Aubry argues the nickel will soon hit the same tipping point the penny did in 1982, as Canadians hoard them in greater numbers, forcing the mint to distribute up to 350 million each year to meet retail demand.

"It's a sign that the coin is not well used," he said.

The Royal Canadian Mint has teamed in recent years with Coinstar Inc. to place automated coin-sorting and counting kiosks in grocery stores and other retail outlets to prod Canadians into circulating coins now stuck in jars and drawers. Most of these recycled coins are pennies, but many are nickels.

A spokesman for vending-machine operators told a Senate committee in 2010 that Canada should just dump the little-used nickel.

"As far as our industry is concerned, eliminating the penny is a good step and a smart business decision," said Kim Lockie, then-president of the Canadian Automatic Merchandising Association.

"We suggest the nickel go at the same time. If there is a little bit of a problem, we get it all over with at once."

Penny, nickel eliminations won't impact inflation

A spokesman for Finance Canada, David Barnabe, said Wednesday the government has no plans to eliminate the five-cent coin.

New Zealand successfully eliminated its five-cent piece in 2006, after dumping its one- and two-cent coins. And since at least 2009, the Australian government has been considering whether to follow suit by killing its own five-cent coin, millions of which have actually been manufactured by the Royal Canadian Mint for a profit.

Aubrey, now with the Quebec-based Cirano inter-university research centre, says eliminating Canada's nickel could be part of a larger strategy to retool the currency.

That would include creating a new coin to replace the five-dollar bill; adding a 20-cent coin; eliminating the quarter; perhaps creating a $200 bill; and reducing all coin sizes significantly to ease the burden on pockets.

But first, he says, Canadians must be convinced that the disappearance of the penny will have no effect on inflation, as repeatedly demonstrated in other countries that have ditched their lowest-value coinage.

The Finance Department has offered guidelines for rounding off cash prices to the nearest nickel, but will neither set rules nor police retailers. Electronic payments, such as those on credit cards, will not be rounded.

The penny remains legal tender indefinitely, though will gradually disappear from cash-register tills over the next few years. About 35 billion have been minted since 1908.

Some businesses may decline to accept pennies next month, as there is no federal requirement they do so. Some financial institutions may also require that redeemed coins be rolled.