[Recorded by Electronic Apparatus]
Tuesday, June 13, 1995
.1536 
[English]
The Chairman: Colleagues, we're going to bring this meeting to order, now that we have the esteemed minister here.
It's nice to see you, Mr. Minister. We had a productive two hours this morning with some witnesses, and I'm sure they've raised some questions that you'll be addressing either in your opening presentation or at some later time. So welcome, and you may proceed.
Hon. David Dingwall (Minister of Public Works and Government Services): Thank you, Mr. Chairman. I have a written statement I would like to read to place it on the record.
I want to introduce the president of the Royal Canadian Mint, Danielle Wetherup. We have some other officials here as well who, if need be, will try to provide committee members with any specifics to the questions they wish to ask.
[Translation]
It is with great pleasure that I today appear before this Committee to inform you of the reasons that prompted this government to replace the $2 note by a new coin.
[English]
It has many advantages, and I'm proud that our government is moving ahead in this area as it relates to the $2 coin.
The simple reason we are introducing the $2 coin, Mr. Chairman and committee members, is for savings to the Canadian taxpayer. By replacing the note with a coin, Canadians will save more than $254 million over 20 years. Reduced production and distribution costs of coins as compared to notes will achieve the bulk of this saving. The average life span of a note is one year, while the average life span of a coin is 20 years. The cost to produce a note is 6¢ per unit, compared to the estimated cost to produce the coin at 16¢ per unit.
This, combined with the savings we will generate by changing the metallic composition of the lower denomination coins, will result in total savings of more than $500 million over the next 20 years. Contrary to what some have suggested, half a billion dollars, in my view, is no small piece of change.
On top of the savings, the Government of Canada is also expecting to accrue approximately $449 million in seigniorage to the Consolidated Revenue Fund within 18 months of issuing a $2 coin. Seigniorage is the difference between the face value of the coin and the cost of production and distribution. Additional seigniorage could be generated as a result of more coins being issued than notes, as was the case with the $1 coin, and as a result of future growth in circulation.
As many of you know, our government has defined itself by adhering to certain principles. Through our actions in the past year and a half we've earned, I believe, a reputation for being cost-conscious. This is reflected in the introduction of the new $2 coin. This initiative is in keeping with our government's constant search for more opportunities to save the taxpayers money. It is a clear illustration of our belief that every dollar does and will count.
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In our efforts to reduce the deficit, we must consider every government expenditure as a potential saving. However, a government that cares about people must also seek to minimize the human cost of its decision. That is what we have done.
Although savings to the taxpayers is the main reason, there are other advantages to a $2 coin. The $2 coin reflects the government's willingness to embrace change where others would avoid it. Let's face it, change is never easy. But we believe governing is about making choices, and often those choices involve exchanging the familiar for the new and the innovative.
The $2 coin will respond to growing consumer need. As more and more goods and services are provided through coin-operated machines, the new coin will be more convenient than the $2 note. This offers new and exciting opportunities, I suggest, to the vending machine industry.
We believe that a functional currency system changes as the needs of the country change. We have to stay up to date with new realities, and we have to lead by example.
There are many issues outside of Bill C-82 that some parties will want to raise - for example, discussions with the Department of Finance and the Bank of Canada over compensation for adjustment costs to the new realities of the Canadian coin system. I encourage members to remain focused on the merits of this bill and the hundreds of millions of dollars in savings for the Canadian taxpayer.
It also represents a new technology for Canada. The proposed $2 coin is bi-metallic, like many of the new coins used around the world. Mastering the capability to produce such coins allows the Royal Canadian Mint and Canadian suppliers to compete for even more foreign coin production contracts.
Now, some people have asked why we don't simply eliminate the $2 denomination altogether. They say this would save even more money. Well, I think that's incorrect. Canadians in point of fact depend upon the $2 note for a great number of daily transactions. The note is currently of poor quality paper because of this high level of use. The $2 coin is a practical solution, more durable than the note itself. It reduces the cost to government of maintaining the note, or even simply eliminating the note.
To eliminate the $2 coin would not cut down on the number of coins in pockets and purses of Canadians. Actually I believe the reverse is true. The $1, $2, $5, and $10 combination has been found to result in fewer total notes or coins needed to handle transactions. Without a $2 denomination, more loonies would be required and people would have to carry even more coins. It would take two loonies to replace each $2 note at a cost of approximately 26¢ in comparison to one $2 bi-metallic coin at an estimated cost of 16¢. This would not result in savings, but in point of fact, I believe, additional expenditures.
Furthermore, Mr. Chairman, without a $2 denomination, the more $1 coins that would be required would weigh heavier in the pockets of Canadians. As we know, two loonies weigh 14 grams compared to the weight of the proposed $2 coin, which is 7.3 grams.
There is no doubt that for these many reasons Canadians have reacted positively to this initiative. They are especially pleased about the savings to the public purse. I have been informed that the Bank of Canada estimates that if the $2 denomination were eliminated, it would increase the cost to the government by about $23 million over a 20-year period since twice as many $1 coins would have to be produced.
The mint's research shows that when Canadians learned that the new coin would save the government millions, approximately in excess of 75% expressed their support for this initiative. Furthermore, there is very little concern among Canadians about the discontinuation of the $2 bill; 45% of Canadians indicated they would be completely unconcerned, while another 19% said that while they would be nostalgic, they were also unconcerned.
[Translation]
Obviously Canadians are very interested by this new coin. The great number of drawings we received from across the country speak for themselves.
[English]
The mint has received some 17,000 designs. Here are a few. I want to share with you, Mr. Chairman, that I have not personally viewed all of the various designs that have come in, but the mint is actively looking at them.
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I think part of this interest can be ascribed to the fact that since the successful introduction of the $1 coin in 1987, Canadians are becoming used to the idea of higher denomination coins. For several years, after all, higher denomination coins have been in use in industrialized nations. The United Kingdom, France, Germany, Japan, Italy, Australia, and many other countries already use coins that are worth the same as or more than the proposed $2 coin.
Some might wonder why so many nations of the world are switching to higher denomination coins at a time when more and more people are using credit and debit cards. Higher denomination coins might seem a step backward, if you will, to a time before paper money, instead of a step forward to more plastic.
Cash cards will not mean the end of cash in our society, and I think we have to recognize that. For the foreseeable future, cash will be a necessary requirement. Like credit cards and debit cards, cash cards will find their own market niche in people who prefer to manage their cash this way. However, the need for cash still remains. The extent to which cash cards may replace coinage is, I believe, only a matter of conjecture at this time. However, even if cash cards replace a significant percentage of transactions, most of these would be higher-value bill transactions and not coinage.
Coins are used to acquire numerous services, such as mass transit, telephone calls, washing machines at the laundromat, video and pool games, parking, etc. We now buy more and more goods from coin-operated machines because the vending machine industry is presenting us with a greater variety of products and choices.
Given the important place coins occupy at the centre of our economy, I believe the government is taking steps to ensure a smooth transition from the $2 note to the $2 coin. We intend to make the adjustment easier for the Canadian vending industry. In the mint's discussions with representatives of this sector, we were asked for clear direction on all potential changes to the coin system and sufficient notice to make the necessary adjustments to their businesses. This is why, Mr. Chairman, we announced the introduction of the new coin, along with proposed changes to the metal composition of the lower denomination coins, earlier this year for implementation early next year. This will save time and money, as the owners will only have to recalibrate their machines once.
I realize there is some disagreement as to the cost of adopting these new coins. Our figures suggest it would cost the industry approximately $25 million to reset machines to take the new coins. Recently, we have heard various estimates ranging from $25 to $400 per machine. Obviously the cost will vary depending upon the type and sophistication of each of the machines.
The larger issue, however, is that businesses have to invest periodically in new machinery, or in fact in new technology. Again, the government is trying to reduce the impact on the industry by announcing the proposed changes to Canadian coinage all at the same time.
Mr. Chairman, we are introducing the new $2 coin and changes to the other coins for a very simple reason - to save the taxpayers money. That's what we were elected to do and that's what we're going to do. Some people have suggested that we should compensate the vending machine industry for the expenses of altering their machines. I suggest that in an era of fiscal restraint, we simply can't afford it. We must use our limited resources very strategically, and in ways that result in the greatest possible benefit for the greatest possible number of Canadians.
We have also paid special attention to the 800,000 Canadians who are blind or vision-impaired. Since the announcement last February of our intention to introduce a $2 coin, we have had round-table discussions with representatives from the Canadian Council of the Blind. Vision-impaired persons and totally blind persons found difficulty in distinguishing the seven-sided proposed $2 coin from the eleven-sided $1 coin. The mint experimented with serrated edges on the seven sides and also produced a round bi-metallic coin with and without serrations. The round coin with interrupted serrated edges was preferred to the proposed seven-sided coin. This coin will be the same composition and weight as proposed in Bill C-82. Therefore, Mr. Chairman, the change in shape does not involve an amendment to the legislation before Parliament.
We are confident that every Canadian will find this new coin easy to identify and easy to use. I have a number of them here that I'm going to ask a staff member to circulate, and I hope I get them back, Mr. Chairman.
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Mr. Strahl (Fraser Valley East): Hope springs eternal.
Mr. Dingwall: You can see the difference between the proposed coin and the others, Mr. Chairman. It is composed of a nickel outer ring with a round aluminum bronze core, and it weighs approximately 7.3 grams. The Royal Canadian Mint believes that the proposed combination of the alloys for the outer ring and for the core is the best in terms of visual colour, appearance, resistance to wear and tarnishing, disposal of brokerage, and recycling of metals.
As I said at the outset, Mr. Chairman, I believe this particular piece of legislation before committee members addresses a major concern of the people of Canada, and that's to save taxpayers money. We have attempted to be responsive where possible, and I believe this particular coin has many advantages.
I look forward to any questions members may have. If they are technical in nature, I will ask representatives of the mint to provide you with that information - if not today, Mr. Chairman, then in due course.
The Chairman: I think these tokens would look awfully good on my lapel.
Thank you, Mr. Minister. I have one question before we go to the Bloc to start the usual round of questioning.
I thought it interesting that the presenters this morning did not challenge the major thrust of the bill, which is to create the $2 coin. They did, however, make a plea for more time to complete the conversion, and one of the witnesses wanted some financial help. So my question is this: beyond the as yet to be made decision concerning what will be carried on the reverse side of the coin, is the consultation period over? In other words, are things pretty well cut and dried at this point? Is it just a matter of passing the bill and then going ahead and creating the coin to be implemented at the beginning of next year?
Mr. Dingwall: Mr. Chairman, I don't wish to take a long time in response to a very substantive question. I think it must be understood that prior to the budget, the Minister of Finance issued a pretty clear and unequivocal directive to all ministers to go back to their respective departments and agencies and come forward with suggestions whereby moneys could be saved for the taxpayers in order to reduce our deficit. As this committee knows, we've done a fair amount of that in the departments and agencies that I have, and as a result, I've asked the mint to come forward with different proposals.
Since this is a budgetary item, the Minister of Finance included that in his budget statement, as well as in his budgetary papers. The projections of savings are written into the budget, and it's fundamental to the operations of the government that we proceed in the manner in which we are proceeding.
I'm only too well aware of people who are suggesting that we ought to delay. Some have suggested 1997. I believe some have suggested 1998. Some even asked if we could go to 1999. The reality is that we have to get our deficit down, and this is a budgetary item that the Minister of Finance believed was of sufficient importance to be included in his budget. As the minister responsible, I am now trying to implement those decisions that have been made and duly passed, if you will, by the Parliament of Canada.
The Chairman: Thank you.
Monsieur Brien, you have eight minutes.
[Translation]
Mr. Brien (Témiscamingue): I'd like to make a brief comment before I ask my question. As I was listening to you, I had the impression that all this is basically driven by budgetary and financial objectives. I understand the appeal of the $449 million in seigniorage to the government within 18 months of issuing the coin. There are many advantages for the government, but the consumer will ultimately pay for the cost of converting vending machines; that cost will be reflected in the price. That's obvious. I personally don't believe that companies will lose money or that their profits will decrease. They will simply pass the increased costs onto the consumer. Therefore, in the short term, the consumer won't save any money.
However, I admit that in the long term there are potential savings. But in the short term, there won't be any savings for consumers. In view of this, and given the fact that we are heading increasingly towards the use of electronic money, have you given any thought to the idea of waiting a little bit, since in a few years at the most, vending machines will have to be converted again to take debit cards.
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So it would be possible to save money by doing both conversions at the same time.
[English]
Mr. Dingwall: I thank my colleague for the questions. I guess we're going to have to agree to disagree. I believe the savings are very significant. They're booked in terms of the budgetary papers of the Minister of Finance and are quite significant over an extended period of time.
In terms of your question about whether we are prepared to wait for a period of time in order to implement this, I think we have given reasonable notice in terms of seven to twelve months. I'm sure there will be others who will want a longer period of time, but I don't think, in view of our fiscal situation, that I can wait any longer than what has been indicated.
We are attempting to facilitate the adjustments that are here because we've given the notice. We're attempting to have all of the changes - both in terms of the $2 coin itself and the changes in the various smaller denominations - take place all at the same time.
Just so that we're clear, Mr. Chairman, I want to repeat this. Canadians will save more than $254 million over 20 years. With the various changes in the metallic composition of the lower denomination coins and the savings there, that's a total of $500 million over 20 years - plus the seigniorage is $449 million, which could accrue perhaps within an 18- to 20-month period. That's very significant to the Government of Canada.
[Translation]
Mr. Brien: In your brief, you more or less answered the questions of people who want to abolish the $2 bill, but in my opinion, your figures don't stand up to scrutiny. You said it would take two loonies to replace each dollar note. That's logical.
You said it costs approximately $0.16 to produce a coin compared to $0.06 for a dollar note. But that's where you end your comparison and you don't look at the long-term as you did for the conversion to the new system. Your comparison was made for only one year, but sooner or later the $2 bill might disappear. Why didn't you take the long-term view?
[English]
Mr. Dingwall: I'm going to ask the president of the mint to respond to your question.
[Translation]
Mrs. Danielle Wetherup (President, Royal Canadian Mint): I think it's basic math. If it costs $0.06 to produce a $2 bill, and if the bill has a one year lifespan... Today, a $2 bill last less than a year; it lasts about six months. You've probably noticed when you go shopping that $2 bills are in comparatively worse shape than five or twenty dollar bills. It costs us $0.16 to produce a $2 bill and $0.11 to produce a loonie. If you buy something for a dollar, and if you pay with a five dollar bill and you're given four loonies in change, you will have received four times $0.11 in terms of production value instead of two times $0.16.
Mr. Brien: I find that comparison is exaggerated.
Mrs. Wetherup: It's not exaggerated, sir. Those are the production costs. That's what it costs. I don't think I'm exaggerating.
Mr. Brien: In your brief you said it costs twice as much, but now you're telling me that it's four times more expensive. You're not being consistent. In your example, you paid $5 for something which costs $1. If you pay five dollars for a one dollar item, in your average transaction you won't get four loonies back. It's a falty argument.
.1600
Mrs. Wetherup: That was just an example. Whether the item costs two, three or four dollars, you're still going to get change back. If you calculate the value everytime you need a two dollar bill, and you multiply that cost by a high factor, you'll see that you can save a lot of money with one coin instead of two. That's logical, obvious and unassailable. We're just giving you the production cost.
Mr. Brien: I understand what you're saying. The comparison contained in your brief is not clear and I think that's been done deliberately. You seem to be comparing a situation in which there are no more $2 bills with a situation in which there is a $2 coin. However, we're asking you to compare, to analyze, the current situation and a situation in which there would simply be no more $2 bills. Do you agree with me that in that later scenario there would be significant savings?
Mrs. Wetherup: If you eliminate the $2 bill, it'll cost the government an extra $21 million.
Mr. Brien: For all consumers, including the government? Consumers are the government.
Mr. Dingwall: Could you please repeat that?
Mr. Brien: You talked about what it would cost the government if there were no revenues from seigniorage. I agree with you that the government would end up paying more if the bill was eliminated.
Mrs. Wetherup: No, the extra cost of production would be $21 million.
Mr. Brien: Over how many years?
Mrs. Wetherup: Initially.
[English]
The Chairman: This is the last answer in this exchange.
[Translation]
Mr. Brien: I'll come back later.
[English]
The Chairman: Thank you.
We now go to the third party. Mr. Epp.
Mr. Epp (Elk Island): Thank you. I am honoured to be here on behalf of the third party.
Mr. Minister, you have said and your parliamentary secretary has said, over and over, this is a huge, significant saving to the government. I mentioned it in my speech to the House, so you have had advance notice of this question. How can you say this is so significant when the total savings from the $2 coin over 20 years pays the interest - just the interest - on our debt for just a little over two days? We're talking about savings over 20 years of $250 million. Our interest is around $110 million a day. How can that be so significant? Why are we wasting our time on this when we should be really hitting the deficit and the government overexpenditures?
Mr. Dingwall: Mr. Epp, you're a very experienced individual. For you to make that kind of statement.... You know and I know that to get to a nickel you have to have five pennies, to get to 25¢ you have to have five nickels or 25¢, to reach a dollar you have to have 100¢, and to reach $254 million you have to have a hell of a lot of cash. To suggest to the government operations committee that a $250 million saving over 20 years is not significant...Mr. Epp, you may have had a little lapse there, but a $254 million saving is a very substantial number.
Now, is it substantial in terms of the overall government operations and the deficit of the Government of Canada? I guess if one wished to, one could concur with your theory. But the way in which you reduce your deficit and your debt is by taking these kinds of steps, which over a period of time will get us down where we want to be. So $254 million is rather significant.
Mr. Epp: I guess we will continue to disagree on that, in the sense that I think your statement about the huge savings.... Why don't you say it's a saving of $1 billion over 80 years? Then it would be much more significant.
I hate to use the term, because it sounds pejorative, but you're using smoke and mirrors by using 20 years in order to extrapolate a saving. It sounds as if it's a lot of money, and indeed it is. But your salary as a member of Parliament and as a minister is $2 million over 20 years. Do you want us to use that as your salary? You have to be realistic. We're talking annual budget here.
.1605
I want to ask another question. Again, it is related to the speech I made in the House, where I indicated that if the cost of materials that are purchased through coin-operated machines goes up on average by only 10¢, which I think is typical of what would happen because of the cost of retooling, any individual who makes more than four purchases from a machine in a year is going to end up, as a typical taxpayer, paying more per year than if we just left it the way it was. Sure, you have to reprint these $2 bills, but that cost is less than the cost of making this change.
Mr. Dingwall: I don't know where one gets that kind of evidence in terms of an inflation rate of 10%. I have been around this Parliament for a good number of years and the last time I checked with the Department of Finance and other reputable institutions throughout the country, I thought inflation was substantially lower than what he is referring to. I don't agree with the premise of his argument.
Mr. Epp: The premise is based on the fact that based on the statement you made here today, you are not expecting to have the government pay the owners and operators of coin-operated machines -
Mr. Dingwall: Be careful.
Mr. Epp: Well, that's what you said. You said this would be imprudent. Now, maybe you are already telling us you're going to do something imprudent, and that's fine, but you said it would be imprudent to spend the money, which means these operators themselves are going to have to pay the cost of retooling. If they pay for it themselves they are either going to go out of business or will have to pass the cost on to their customers. Their product will probably not decrease in price, so they will have to transfer the cost to the customer, which is going to be either a nickel or a dime. If you take the annual savings, break it down per taxpayer, it works out to around 40¢ per taxpayer per year.
Mr. Dingwall: You said $254 million wasn't a big saving and $254 million is a big saving. You said you can't float it over 20 years because that would be wrong, and then you made reference to my pension.
Mr. Epp: I never mentioned the word ``pension''.
Mr. Dingwall: Then you made reference to my salary, and your colleague in the House of Commons has been using that continuously over a 25-year or 35-year period. I think you had better have a discussion with her.
I will take it that the information you are sharing with us is credible, but that's not the information we've ascertained from the vending machine industry. If you have that kind of evidence to arrive at your conclusions, I'll take a look at it, but I don't find that evidence is coming forward at all.
In terms of how they will fund their cost, they will fund their cost as any other business does: they will float it. Some will do it over a 10-year cycle, some will do it over a 5-year cycle, and some will do it over 25 years, depending upon the capital investment they will have to take.
Finally, if you're suggesting a subsidy for the vending machine industry, I think you should come out and talk in clear language, saying the Reform Party believes we should subsidize the vending machine industry. If that's what you're suggesting, Mr. Epp, I will raise that with the Minister of Finance on your behalf.
Mr. Epp: I will say very clearly right now that the Reform Party believes the Liberals will subsidize this. That's what it believes.
I'd like to ask you about the research you have done with respect to other alternatives. It looks right now as if this is a done deal. We have the coins here, and I know with your majority you can in fact arrange for it to be a done deal. But has there been adequate research in terms of other alternatives?
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We had a member in the committee this morning who spoke of the ability to print more durable notes, at a slightly increased cost, that would last, say, two years instead of one year. Has that been investigated as a better cost-saving measure in terms of keeping that currency out there? Also, has there been any serious discussion and study on just eliminating the $2 denomination?
The Chairman: Can you give a concise answer to that, Mr. Dingwall?
Mr. Dingwall: I want to be very clear, because he's asking a very fundamental question. The subject-matter we're dealing with was a substantive part of the budget statement of the Minister of Finance. The $2 coin does not become law per se until such time as both Houses of Parliament approve it, so we have a period of discussion here. We'll have opportunities in the House and they'll have opportunities in the other House to look at the subject-matter that is before us.
In terms of the elimination of the $2 denomination, we have not found any overwhelming evidence to suggest that we get rid of the $2 denomination - none whatsoever. In fact, it's been the opposite. In our investigations, in our focus groups and our consultations, the elimination of the $2 denomination has not been a major concern of Canadians.
In terms of other possibilities, I would be open to looking at any proposals the private sector or others would put on the table, provided they're costed out and there seems to be some level of reasonableness associated with them. If they wish to come forward - I understand they were before the committee today - I'd be happy to look at it. But we believe the measure we're taking now addresses some pretty fundamental concerns of the government and we wish to proceed with it.
The Chairman: Thank you.
The Winnipeg Mint resides in the riding of the hon. member from St. Boniface. He's champing at the bit, so I'll give him the floor.
Mr. Duhamel (St. Boniface): Thank you, Minister, for your presentation. I actually have four points and/or questions to make and I'd like to be able to cover them in my eight minutes.
The first is with respect to the direction money is taking in the world. There are basically three directions: more paper, more coinage or electronic - call it what you will - transmission of money. Is there a trend? Are we going in the direction most countries are headed in? Do you know that?
Mr. Dingwall: If you look at some of the other countries that have the various coins, whether they be $2 or larger - $5 in some instances - I think we're in similar step, if you will, whether it be in Australia, Japan, France, or various countries throughout Europe. We are certainly in sync with what's happening on the international stage.
Mr. Duhamel: Minister, as I understand it, the request on the part of some people to delay is really an impossibility because this decision is part of the budgetary process, budget decisions that have been made. Is it a correct interpretation that there is no opportunity for delay? A number of people are anxious to know exactly where they stand.
Mr. Dingwall: Well, we could delay quite easily if this committee and Parliament say they want to delay it. But if you delay it, you are going to directly affect the budgetary projections of the Minister of Finance, who has counted in for subsequent fiscal years the revenues that will accrue to the Government of Canada as a result of this particular announcement he made in his budget. That's point number one.
Point number two is that we attempted, where possible, to give due notice to the private sector, seven to twelve months, vis-à-vis the $2 coin, and also by making certain that the changes in the other lower denominational coins would all take place at the same time. So we won't have a situation where there would be a new technology bought this month, and then they're going to have to buy another technology for a coin another month and they're going to have to redo their machines. Hopefully, they'll be able to do it in one shot.
Mr. Duhamel: That was my next question, actually. Apart from the $2 coin, you're also introducing new metal compositions for the lower denominations. The intent there is to have one calibration, therefore one cost, and make it cheaper for industry overall over time.
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Mr. Dingwall: Absolutely. One of the things we have heard from the industry is that if you're going to be making these changes, don't make them sporadically. Don't come up with a new $2 coin and in the following year say you're going to change the 10¢ piece and in the next year say you're going to change the 5¢ piece. If you're going to do it, do it all at once. As a result, we're doing that.
The change in terms of the composition of the coins of smaller denominations is quite significant. I don't think we should lose sight of that in the savings it will bring to the Government of Canada over an extended period of time.
Mr. Duhamel: I understand there will be approximately $254 million in savings over 20 years. The combined savings that will be generated by changing the metallic composition will raise that to $500 million. That's fairly clear to me.
What isn't nearly as clear is on the second page:
- On top of the savings, the Government of Canada is also expecting to accrue approximately
$449 million in seigniorage to the Consolidated Revenue Fund within 18 months of issuing a
two dollar coin.
Mr. Dingwall: I'm probably going to let the president buttress the answer that I might give.
The government, within 18 months, will be able to accrue this kind of a benefit. As in the definition set out on the page, it's the difference in terms of the actual cost and the face value of the coin. With the proliferation of additional coins into the system, more cash will come back.
Consider the elimination of the $2 note. Our belief is that Canadians are going to continue to use the $2 denomination. The need will be there. As a result, therefore, upon immediate circulation you're going to get that payback, and it's going to come pretty quickly.
In terms of other coins, I'm going to be looking at some other aspects of coinage. I'd like to come back to the committee to share that at some future date. I'd like to be focused on the $2 coin.
Perhaps I might ask the president if she has any supplementary information to share with our colleague.
Mrs. Wetherup: I think the minister answered very completely. The big difference is that basically it costs 16¢ to produce a coin. Then the Government of Canada sells it to the bank for $2. The difference between the cost of production and the cost of sale to the bank is called seigniorage. That has been taken into account historically, since the Romans. That is why it is called seigniorage. It has the connotation of the transactional cost versus the price of the metal, which in olden times used to be more equal.
Mr. Duhamel: So if you take the life span of the coin - 20 years - and the savings that will accrue to that, as well as the changing of the metallic base of the other coins - this $449 million - you almost have a $1 billion advantage to the country.
I'll leave it on this one particular note. I'm extrapolating. Somehow there has to be something wrong with my logic. If we could do this kind of thing with one coin, theoretically we can do it with another coin and another coin and another coin, and we could go on. There's got to be a limit to what we can do. Otherwise, I think there's money to be made here.
Mr. Dingwall: I think my colleague is correct in theory. But I think we have to be prudent in how we move. It's been suggested to me, for instance, on numerous occasions that we might want to opt for a $5 coin. It's been done in other jurisdictions. It could reap benefits to the Crown and save the government money. But I think we have to be prudent in how we move with other coins.
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The $2 denomination is a pretty substantial, widely used denomination. It will continue that way. Canadians expect it. Canadians use it for a variety of different products and services. I suggest to you that with the $2 coin coming on, the private sector will show its creativity and imagination by providing even more products and services on the market to utilize that coin.
But moving away from the $2 coin, I would want to do the kind of research that other members have referred to such as the consultations, which I think are necessary, before I would want to make any kind of recommendation to my cabinet colleagues or indeed to the committee here.
The Chairman: It might be helpful, on this question of seigniorage, for our witnesses to explain why seigniorage is not applicable to the $2 note. The coin is sold for $2 after production costs of 16¢. So the seigniorage is $1.84. You similarly sell the $2 note for $2 to the financial institutions, but there is no seigniorage, despite the fact that the production cost is only 6¢. Perhaps you could explain.
Mr. Dingwall: I don't have that technical information with me today, Mr. Chairman. If you had given me notice, I would certainly have brushed up on that technicality. I'll allow the president to give a brief intervention, but perhaps we could table, with the chair and other members, a short paper on that particular question and its relevance.
Mrs. Wetherup: I think we have offered some briefings to the members of this committee, but I will repeat the information.
Coins for circulation in Canada are produced by the mint for the Minister of Finance, who pays the mint for the cost of production and distribution. Then coins are sold to financial institutions, which pay the difference between that cost and the face value. That difference goes to the Consolidated Revenue Fund.
Notes for circulation in Canada are issued by the Bank of Canada, which contracts the production of the notes to private companies. The cost of producing and handling the notes is charged to the operating expense of the bank. The notes are issued to financial institutions, which pay for the face value of those notes to the bank, for which the banks establish a liability. There's no liability to the government with coins; there is some liability with notes.
The bank invests the proceeds received from the issue of the notes in assets, mainly marketable Government of Canada securities. The net revenue earned by the Bank of Canada is paid into the Consolidated Revenue Fund and recorded as revenue of the Government of Canada. These are the different approaches with regard to coins and notes.
Mr. Dingwall: On the last point the president referred to, if the committee wishes, we would be happy to provide a brief document on that issue.
[Translation]
Mr. Brien: Just to make this quite clear, how much does a $2 banknote currently cost?
Mrs. Wetherup: To reproduce it?
Mr. Brien: Yes.
Mrs. Wetherup: It costs $0.06.
Mr. Brien: You said that 2$ bills lasted about six months. So you would have to have two of them for one year. So that means annual costs of about $0.12. How much do two $1 coins cost to produce?
Mrs. Wetherup: Twenty-two cents.
Mr. Brien: Let's double that. Coins last for about 20 years. So, by the second year, it would be more economical to have two $1 coins rather than one $2 note.
Mrs. Wetherup: No, because you're assuming that there is a need for the $2 note. You're saying that with the current $1 coin, we would have enough.
Mr. Brien: No. We should produce new coins if new ones have to be put into circulation. They will cost $0.22 the first year. They will be in circulation for about 20 years, whereas $2 notes only last six months.
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I'm not saying it's the best system, but you could save money if there were no $2 bills at all, which is not what you say in your brief. You're stating the opposite.
Mrs. Wetherup: If we didn't produce any, there would be savings, but those savings would be even greater if you introduced the $2 coin.
Mr. Brien: That's not what it says in your brief.
Mrs. Wetherup: If you take the worst case scenario and go to the best, you'd start out with $1 bills, then move on to loonies and then to $2 coins, which would result in the greatest savings.
Mr. Brien: There you go. You said it would cost 23 million extra dollars over 20 years in scenarios A, B and C...
Mrs. Wetherup: In scenario B,
Mr. Brien: Scenario B involves two $1 coins; there wouldn't be any $1 bills. In your brief, you say it would cost the government $23 million over 20 years.
Mrs. Wetherup: The Bank of Canada gave us...
Mr. Brien: You estimate that it will cost about $25 million to convert and adapt vending machines, etc. The consumer doesn't care whether his money goes into the pockets of the government or the vending machine owners. The consumer will not save any money.
Mrs. Wetherup: Don't you think, dear sir, that the vending machine industry will have to make changes to its machines? Let me remind you that since 1978 we've told them about the changes we will eventually make to Canadian currency.
We have had very intense consultations with them since 1988. As we told you this morning, it's not the bill calling for the creation of a $2 coin which is being challenged. They have no problem whatsoever with the new $2 coin. However, they don't like the order in council on changes to the composition to our currency. But the consumer doesn't care about the new $2 coin. Some witnesses said that people are against changing the metal composition of our coins. But the issue is the timetable. Some operators want the changes to happen as soon as possible, whereas others want to delay them.
[English]
Mr. Bryden (Hamilton - Wentworth): I take it the Queen is usually on the obverse or the reverse of a coin. Is it the obverse?
Mrs. Wetherup: Obverse, yes.
Mr. Bryden: Is there any law that requires royalty to be on a coin in Canada?
Okay, there's no law.
Have you factored in the fact that the Queen is going to step down soon, one way or another, and you'll have to reissue this $2 coin with the image of Charles on it?
Mr. Dingwall: That's a hypothetical question, Mr. Chairman.
Mr. Bryden: It's not a hypothetical question.
Mr. Dingwall: It is a hypothetical question. The Queen may live for another 50 years. How do you know? I don't know.
Mr. Bryden: I take it, though, that a cost would be involved in reissuing the coin with Charles on it.
Mr. Dingwall: We have pictures of prime ministers who are deceased on various dollar bills.
Mr. Bryden: That's precisely what I'm driving at. Is this not an opportunity, Mr. Minister, instead of having the Queen on the coin, to celebrate Canada by putting the Canadian flag, for example, on the obverse of the coin, replacing royalty with something that celebrates Canada and is specifically Canadian?
Mr. Dingwall: I'll entertain your suggestion, but it is our intention that we would move forward with a picture of Her Majesty on the coin. We have yet to determine what would be on the reverse of the coin.
Mr. Bryden: But if I were able to persuade other members, and perhaps my Bloc friend here, to put the Canadian flag on the coin and it were a recommendation of this committee, it would be something the government would consider, I take it.
Mr. Dingwall: Yes, I am sure the government would consider it.
Mr. Bryden: Thank you.
The Chairman: Mrs. Chamberlain, you can have Mr. Bryden's time.
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Mrs. Chamberlain (Guelph - Wellington): Thank you. First of all, I'd like to put on record that I'm not in favour of subsidies, but I do want to talk about that area.
I hear, Mr. Minister, that you do point out that this coin is important for savings to the Canadian taxpayer. But the area I want to speak about today is small business and how this particular initiative does change the face of small business.
You have listed on the top of page 7 several areas of small businesses - washing machines and laundromats, video and pool games - and I'm sure there are other things that would be in the line of small business. On page 8 you say that it's important that small business or any type of business puts back into society, the economy, upgrading, those kinds of things. But this really is a forced investment for those particular groups of people. What do we do for these people? I know we can't do subsidies, but how do we help them survive? That really has been our election platform.
I'm quite concerned about this area. We may say it's for the greater good of everyone, but still, we heard from vending companies this morning that say this is going to be a fairly significant cost for them. I'd just like a little more information on that.
Mr. Dingwall: I certainly appreciate the concern they have expressed to you. They have certainly expressed it to the mint. What we have attempted to do to lessen those difficulties is give notice of seven to twelve months, which is reasonable notice; I don't think one could argue with that. Secondly, after consultations we have moved, both in terms of the new $2 coin as well as the lowering of the composition of the other denominational coins, in doing all that at once. Therefore, their change-over will be minimal as opposed to being every year, every year, every year.
I am certain that the private sector, as a result of the new $2 coin coming into place, will be able to offer many more services and products than they do at the present time. That in itself, I think, will reap them the kind of money they are going to have to have for purposes of their new capitalization.
The Government of Canada had very few choices. We're trying to reduce the deficit. We're trying to save the taxpayer money. We had to come in with some difficult decisions. This is not the sixties or the seventies where we can roll out a subsidy or a form of compensation to the private sector in order to facilitate them in their capitalization. We've attempted to do it through notice and by consolidating all the changes at once. We're confident that they have enough creativity to form new products and new services from which they'll be able to benefit substantially, more so than they have in the past.
The Chairman: Thank you. We're out of time.
Mr. Dingwall: Well, I'll take one question from Chuck.
Mr. Strahl: I've been so patient. Thank you, Mr. Minister.
You mentioned that the committee and Parliament decided, of course, as Parliament reigns supreme, that this could be delayed. I just wondered whether contracts have been let for procurement and other aspects of the $2 coin. Has it already been set in motion?
Mr. Dingwall: No, no contracts have been let.
Mr. Epp: Mr. Chair, I have one very brief intervention. I would like to tell the minister that there is some interest in this coin. I have discovered in my constituency a sculptor who does absolutely beautiful work and he has designed a new face for the coin that would beautifully fit the two-metal arrangement. Also, if he got the design, there would be absolutely no charges of patronage, since this is a person in a Reform constituency.
Mr. Strahl: Always a consideration.
Mr. Epp: I'd like to know what I have to do in order to put this design, on behalf of one of my constituents, into the works.
Mr. Dingwall: There are three things: number one, give me back my coin; number two, give us a copy of that and the mint officials will take a look at it; and we'll contact the individual who did the drawing.
Mr. Epp: I'd be pleased to do that.
Mr. Dingwall: Now, I hope you don't think your picture can be on the other side of the coin.
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Mr. Epp: [Inaudible]... I thought there'd be no contest.
The Chairman: That space, by the way, is reserved for the minister.
Some hon. members: Oh, oh!
Mr. Dingwall: Before I leave I want to thank the hon. members.
When I go back over my years in Parliament, looking at the number of questions that have been posed to the Royal Canadian Mint, I realize it has been minimal. I think it is great for the purposes of accountability, both for the mint and for the taxpayer, that we are here today, not only talking about the $2 coin, but answering some of the questions John has posed.
Perhaps at a future date I can come back and talk about other possibilities of the Royal Canadian Mint and what it does in this country and abroad.
The Chairman: Thank you, Mr. Minister.
Colleagues, the president of the mint is prepared to stay a little longer. Are there any questions, or have we pretty well exhausted the subject?
Mrs. Chamberlain: We only like grilling the minister. We prefer it.
Mr. Strahl: I have one or two questions. For one thing, my wife and two youngest daughters are going to come to Ottawa this weekend, so I may be phoning you for a tour. I see I have to make reservations.
Mrs. Wetherup: We would be delighted.
Mr. Strahl: Great. I won't phone you, but I'll phone whatever number is in here.
The other thing is the question of using a better quality of paper for the $2 note as an alternative; I think somebody brought that up. Has that been seriously looked at? Have you done a study on it? Is the paper for the $2 note not as good quality as that of the other notes?
Mrs. Wetherup: It's certainly as good a quality paper as any money in circulation internationally. But frankly, even if we came in with a thicker paper or a different paper, our consultation with the Bank of Canada demonstrates that the savings would not come anywhere close to metal.
Mr. Strahl: So no paper company came forward with a hemp paper or something they said must work? Nobody came forward with a proposal?
Mrs. Wetherup: No.
Mr. Bryden: Are there marketing opportunities abroad for the technology you're developing for this coin? Is that one of the motives behind it? I notice the aluminum-bronze alloy is very different from what I've encountered in coins abroad.
Mrs. Wetherup: One of the things we try to do at the mint is reduce the cost of production for Canadian coins by selling our services abroad. So if, from this policy decision, we are able to have a greater advantage internationally to bid for contracts, it is money that goes to the ministry of finance and is an asset in further enhancing the financial picture.
Mr. Strahl: I have one more question. The mint is a crown corporation. Has there been any talk of its becoming anything else, such as contracted out or privatized? Are there any rumours of that?
Mrs. Wetherup: On two occasions there was some serious study. The last time was in 1992. I'm glad to say that, as a crown corporation paying taxes and giving dividends to Canada, it was judged that it was to the advantage of the government to maintain it as a crown corporation as opposed to privatizing it.
Mr. Strahl: So because you are a crown corporation, you didn't come under the government's recent program review for cost-cutting or savings?
Mrs. Wetherup: As we are an organization that has to make a profit, if we have a deficit, we have to borrow at the bank at the same rates at which you borrow at the bank. So we have a constant cost-cutting exercise.
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Basically we try to have our corporation work as the most efficient mint internationally. That is why we are able to win some contracts internationally; we can be competitive because we have low costs.
Mr. Strahl: I hope to see it on Saturday or Sunday.
The Chairman: I trust you have a good relationship with the loan manager at the bank.
Mrs. Wetherup: No. [Inaudible - Editor]
[Translation]
Mr. Bellemare (Carleton - Gloucester): Madam president, in my riding, there's a small family business running about 157 vending machines. These people wrote me to tell me how bad this program would be for their business.
They're not opposed to the $2 coin. Their concern is that right now, they have problems surviving and the idea of converting 157 machines at a suggested cost of $75 to $800 depending on the machine... If it costs them $75 per machine, they'd have to spend $12,000 to make the required changes for the machines to accept the new coin with a different metal composition. If it costs $800 per machine, that would translate into an expense of $130,000 for that small family business.
They find the changes too brutal and too fast. In their opinion, there should be some transition time. How do you answer a small family business? I imagine that all across Canada there are bigger businesses suffering the same fate.
I know that you'll answer me that the government is going to save money. Yes, but that's with coin production. The cost for changing those machines is going to be enormous.
Mrs. Wetherup: I can't tell you there won't be any impact on anyone. We are very senstive to the fact that there will be costs to absorb. We've been discussing things for quite a while with the associations representing people like the ones you've just told us about.
In 1988, six years ago, we undertook discussions with the associations concerning the change in metallic content of some of our coins. The people buying and selling those machines have known for six years there's going to be a change. Every year, we've met with the associations to explain to them and inform them about the need for the coming change in our coins.
Once again, we don't need legislation to change the metal contents of the coins that are now in circulation. That is done by order in council. We had a notice published. We've received information from many people, it's being analyzed and it will be presented to the minister.
Generally speaking, I can tell you that this isn't something that was decided upon and discussed for the first time with this industry when the budget was tabled. We've been talking about this for six years. However, there are some who would like us to put off the decision sine dea.
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At some point, a decision must be made and that's what the government has done.
Mr. Duhamel: Madam, I would simply like you to tell me whether I'm right or not. Did the mint show a profit for a certain number of years in Winnipeg, for example, and elsewhere? Am I right in saying that some profit was shown?
Mrs. Wetherup: Yes.
Mr. Duhamel: That's what I wanted to know. Thank you.
Mrs. Wetherup: That profit was returned to the Department of Finance as a dividend. The mint does not get to keep that profit.
Mr. Duhamel: I understand that and I think it's important it be mentioned when we have the opportunity because a lot of people think that it's rare for an organization like yours to show profit. In this case, it's a misconception and I wanted to clarify that.
Mrs. Wetherup: That's so nice of you and it's much appreciated.
[English]
The Chairman: Thank you, Madam President.
I just want to remind members that tomorrow we'll be hearing presenters on behalf of Domtar and the Canadian Soft Drink Association.
Everybody should return their coins.
This meeting is adjourned.