A Canadian penny slowly disappearing into a shopping cart full of groceries.

Penny Wise, Rounding Foolish? The Hidden Cost of Canada's Penny Elimination

Lena Kashyap in Business & Economy August 2025 • 4 min read.

"Discover how eliminating the penny in Canada led to unexpected financial shifts, affecting both consumers and businesses, and what this means for the future of small transactions."

In 2012, Canada bid farewell to the penny, a seemingly insignificant coin that had jingled in pockets and purses for generations. The Royal Canadian Mint ceased its distribution, and a new era of cash transactions began: the age of the nearest-nickel rounding. The premise was simple: cash transactions would be rounded to the nearest five-cent increment, a move intended to streamline commerce and save taxpayer money.

The theory seemed foolproof. With each final digit having an equal probability of appearing in transactions, the rounding should have averaged out to a net-zero effect. However, as Christina Cheung pointed out in her study "Eliminating the Penny in Canada: An Economic Analysis," reality doesn't always align with theory. Most prices end with the digit nine. That gives more opportunity for rounding to occur.

Cheung's research, leveraging price data from Canadian grocery stores, uncovered that the rounding system imposed financial disadvantages on consumer. Her analysis showed that penny-rounding actually benefits businesses at the expense of consumers, resulting in a net transfer of millions of dollars annually. This article explores Cheung's findings, the implications of penny rounding, and what this means for Canadians.

The Great Canadian Rounding Robbery: How Pennies Add Up

A Canadian penny slowly disappearing into a shopping cart full of groceries.

Cheung's study challenges the conventional wisdom that eliminating the penny would be a neutral event. By analyzing a dataset of over 18,000 grocery prices collected in 2017 from representative Canadian stores, Cheung simulated 10,000 transactions across one to ten item baskets. This helped in assessing the impact of one- to ten-item purchases and varying provincial sales tax rates on penny-rounding.

What Cheung discovered was far from inconsequential. Penny-rounding financially benefits the firms at the expense of the consumers, imposing a net transfer of approximately $3.27 million CAD from consumers to grocery vendors every year. This amount averages to $157 of additional revenue for a typical grocery store per year. A financial windfall from what seems like thin air.

Here are some of the highlights of her analysis:

Skewed Price Endings: A significant portion of prices end in '9,' increasing the likelihood of rounding up.
Consumer Losses: One- and two-item transactions resulted in consumers incurring losses due to rounding, while transactions with more items balanced out to a net-zero effect.
Tax Rate Impact: Different provincial sales tax rates influenced the degree of rounding's financial impact, adding complexity to the overall outcome.

Cheung's findings underscore the subtle yet significant ways in which seemingly small changes in economic policy can lead to unintended consequences. The rounding scheme, intended to simplify transactions, instead created a systematic transfer of wealth from consumers to businesses.

The Future of Change: Are We Ready to Round Again?

As Canada continues to evolve its monetary system, the lessons from the penny's removal offer valuable insights. While the Royal Canadian Mint estimated annual savings of $11 million for taxpayers by phasing out the penny, consumers are bearing the burden of unfair rounding. With discussions around eliminating other denominations like the nickel and dime potentially on the horizon, understanding the full microeconomic effects of rounding is crucial. By addressing these subtle economic shifts, policymakers can ensure a fairer financial landscape for all Canadians.

About this Article -

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Everything You Need To Know

Why did Canada eliminate the penny in 2012?

Canada eliminated the penny in 2012 primarily to streamline commerce and save taxpayer money. The Royal Canadian Mint ceased distributing pennies, leading to cash transactions being rounded to the nearest five-cent increment. The intention was to reduce the costs associated with minting and handling pennies, which had become more expensive than the penny's actual value. However, this move has had other financial implications.

How does rounding to the nearest nickel in Canada financially impact consumers, according to Christina Cheung's research?

Christina Cheung's study, "Eliminating the Penny in Canada: An Economic Analysis," reveals that penny-rounding financially disadvantages consumers. Her research indicates that due to the prevalence of prices ending in '9', the rounding system often benefits businesses at the expense of consumers. This results in a net transfer of approximately $3.27 million CAD annually from consumers to grocery vendors.

What specific findings from Christina Cheung's study highlight the financial impact of penny-rounding on Canadian consumers and businesses?

Cheung's study highlights several key findings: a significant portion of prices end in '9,' increasing the likelihood of rounding up. One- and two-item transactions often result in consumers incurring losses due to rounding. Different provincial sales tax rates influence the degree of rounding's financial impact. These factors collectively contribute to a systematic transfer of wealth from consumers to businesses, with a typical grocery store gaining an additional $157 in revenue per year.

How did Christina Cheung conduct her research on the effects of eliminating the penny in Canada?

Christina Cheung analyzed over 18,000 grocery prices collected in 2017 from representative Canadian stores. She simulated 10,000 transactions involving one to ten items to assess the impact of penny-rounding on different purchase sizes. Her analysis also considered varying provincial sales tax rates. This approach allowed her to quantify the financial impact of penny-rounding on both consumers and businesses, revealing the net transfer of wealth from consumers to businesses.

With the elimination of the penny, is Canada considering eliminating other denominations like the nickel or dime, and what are the potential implications based on the experience with penny-rounding?

While discussions around eliminating other denominations like the nickel and dime have occurred, the experience with penny-rounding highlights the importance of understanding the full microeconomic effects of rounding. The penny's removal resulted in consumers bearing the burden of unfair rounding, despite the Royal Canadian Mint's estimated savings of $11 million for taxpayers. If other denominations are considered for elimination, policymakers should carefully analyze potential unintended consequences to ensure a fairer financial landscape for all Canadians. Failing to do so could exacerbate the wealth transfer from consumers to businesses.