When people hoard coins, the government tends to lose its
control over the money supply in a country. This becomes more and more of a problem as
coins become worth relatively less (in real terms) and cash transactions become
fewer.
The problem is that the government (in your case,
the Bank of Canada) is no longer able to determine how much money will be in
circulation. They can, as you say, determine how much paper money will be out there.
But they cannot determine how many coins are.
If people are
hoarding coins, this means that the money supply will actually be higher than the Bank
of Canada thinks that it is. There will be all these coins that are out there, just
sitting around in people's houses. This will keep the Bank of Canada from being able to
accurately know what they money supply is and, therefore, from keeping the money supply
where it wants it.
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