The Finance Department suggested yesterday there would be significant long-term savings should Canada decide to pull the increasingly costly penny from circulation.

Wayne Foster, financial markets director at the Department of Finance, said there would be some upfront costs in eliminating the penny - but "then you've got ongoing savings," he told the Senate finance committee studying the potential impact of eliminating the coin.

"So you do have a positive long-run economic benefit," he said.

"While pennies are still used today by Canadians as a method of payment, we realize many people also hoard pennies and don't recirculate them," he added.

Canada's venerable penny now costs about 50 per cent more than its value - or about 1.5 cents each - to be placed into circulation, Beverley Lepine, chief operating officer at the Royal Canadian Mint, told the committee.

Lepine said there are an estimated 30 billion pennies in circulation in Canada, more than 600 for every man, woman and child in the country. About 500 million new pennies were produced last year, costing Canadian taxpayers an extra $2.5 million.

The ultimate decision to eliminate the coin rests with the Department of Finance, Lepine said.

The Senate study comes as the federal government announced measures in this year's budget to "modernize Canada's currency" by printing bank notes, now made from a cotton-based paper, on a type of plastic, as well as a new production method for $1 and $2 coins. The new bills will be cheaper to produce and will last longer.

Irving Gerstein, a Conservative senator from Ontario and deputy chairman of the finance committee, said it makes sense to abolish the penny if the government wants to spend less producing its money.

"The penny has outlived its usefulness. It is, in fact, a piece of currency that lacks currency," he said.

If Canada were to phase pennies out of circulation, it would introduce a "rounding" system to adjust prices to the nearest nickel. The rounding system would price cash purchases to the nearest nickel, leaving a two-cent rounding flexibility.

The rounding will occur for the total purchase price after tax. For example, if a total purchase totalled $29.98, it would be rounded to $30. On the flip side, if the total was $29.96, you would be charged $29.95 in cash.