Canada will withdraw the penny from circulation this year because it costs more to produce than its face value, the government announced Thursday.

"Pennies take up too much space on our dressers at home. They take up far too much time for small businesses trying to grow and create jobs. It costs taxpayers a penny-and-a-half every time we make one," Finance Minister Jim Flaherty told AFP.

"We will, therefore, stop making them."

The Royal Canadian Mint will cease distribution of pennies in late 2012, AFP reports.

The penny reportedly retained only a 20th of its original purchasing power, Reuters reports. The Canadian government will save around $11 million a year by withdrawing the one-cent coins from circulation.

"Financial institutions face increasing costs for handling, storing and transporting pennies. Over time, the penny's burden to the economy has grown relative to its value as a means of payment," the government said in a budget document cited by Reuters.

The penny can continue to be used in payments, but as they are gradually removed from circulation, prices for cash will be rounded up or down to the closest five cents, Reuters reports.