First Canada decided to get rid of its penny, and now it’s creating a digital currency.

The government got rid of the penny because it costs more to make one than it’s worth. And the Royal Canadian Mint is developing a virtual currency so that people can pay each other for small transactions using smartphones, USB sticks, computers, and tablets, the Toronto Star reports.

The currency is called MintChip and is in the research and development phase.

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2012

Canada’s mint is conducting a contest for software developers to create MintChip applications for mobile devices. The contest’s prize is decidedly old school — gold wafers and coins worth about $50,000.

“There’s been a very huge growing digital economy that is really going to be fueled by smartphones and mobile being the next big thing,” Marc Brule, the mint’s chief financial officer, tells the Star.

The MintChip will fulfill the need for people to exchange small amounts of money without personal information being included in the transaction, he says.

Brule points out that the mint is no stranger to creative moves. Last year, for example, it conducted an initial public offering of exchange-traded receipts for its gold holdings.

“The functional goals of MintChip are commendable,” electronic money consultant Jon Matonis writes on Forbes.com. “We have indeed come a long way when we witness a monetary authority advocating the protection of privacy and emulating the attributes of physical cash.”

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2012