Stop making cents
COSTLY CENTS:It costs around 1.5 cent to make a one cent coin – so is it time to ditch these mostly useless, tiny coins and let low denominations go the way of the farthing?
W E LOST TRACK of our pounds during the boom years but did a fine job looking after our pennies, mostly by storing them securely behind sofa cushions, in change jars and in the pockets of old pairs of jeans. But does the copper mountain we have accumulated have any real value or is it time we scrapped it, particularly as minting all those coins we treat so carelessly costs so much and none of us is likely to have two cents to rub together come Budget day?
The low denomination coins can’t be used in most vending machines or at toll booth plazas and there isn’t a shop in the country that likes to get them in any significant numbers. Retailers or service providers do not have to accept any more than 50 coins of any denomination, so presenting a bus driver with 115 cents and asking him to take you home because it is legal tender will get you nowhere.
So why do we have these fiddly little coins anyway? When the euro came into being in 2002, the one and two cent coins were introduced in an effort to stop greedy retailers ripping people off by rounding up prices to the nearest five cent. It was a noble aim but the price of policing our shops has turned out to be high and the cost of minting and keeping the coins in circulation is ridiculous.
It costs approximately 1.5 cent to produce a one cent coin. There are 22.4 billion such coins in circulation across the EU which means that since the birth of the euro, member states have spent €334 million on a coin which is largely useless.
Our Central Bank has spent €15 million on the one cent coin alone. It appears as if the penny may have dropped in the last 12 months, however, and the number of one cent coins minted has fallen dramatically since 2008. In that year, 89 million one cent coins were minted in Ireland but this fell to 58 million last year. The number of two cent coins dropped from 64 million to 22 million. Across the board the number of coins issued in 2009 against 2008 fell significantly “possibly due to de-hoarding in coins and has contributed to a great circulation of coins,” a bank spokeswoman says.
When the euro era dawned, the Dutch Central Bank estimated that it could save over €30 million a year by not using the smaller coins. And so, displaying the commonsense approach the Dutch are famous for, that is what it decided to do. It was joined by Finland and both now adopt what is known as the Swedish model and round prices to the nearest five cents if consumers pay in cash. The Netherlands and Finland both mint only a token amount of one and two cent coins – largely for collectors – but you’d be frowned upon if you tried to actually buy anything with them.
The chances we will follow suit in the short-term are slim. Last March, the European Commission adopted a recommendation on the scope and effects of legal tender of euro bank notes and coins. It said that “in member states, where rounding regimes have been adopted and prices consequently rounded to the nearest five cents, one and two cent coins should remain legal tender and should continue to be accepted as means of payments.” It added that member states should “refrain from adopting new rounding rules since they affect negatively the power to discharge from a payment obligation by tendering the exact amount owed and since it may lead in some circumstances to a surcharge on cash payments.”
The Commission fears that scrapping lower denomination coins will have an inflationary affect, although with Ireland in a deflationary spiral and consumers increasingly attuned to even slight price increases it seems unlikely here.
Of course small denomination coins have been scrapped before, twice. First to go was the farthing. On May 4th, 1953 a letter appeared in the London Timesfrom a reader by the name of Leigh Vance. It has resonance today. “Recently a bus conductor refused the eight farthings I offered him in exchange for a two-penny ticket. On another occasion the newspaper vendor to whom I gave six farthings in exchange for an evening paper became as abusive as if I had tried to slip him counterfeit coin. Either the farthing has a place in our coinage and is acceptable anywhere, or it is redundant and should be abolished.” It was abolished.
The British farthing was last minted in 1956 after being in circulation in some form or other for over 500 years. The Irish farthing disappeared too. Nearly 30 years later it was the halfpenny’s time to go.
The debate about the worth of copper coins is not unique to Ireland or the euro zone. Australia and New Zealand scrapped their one and two cent coins in the early 1990s and in 2006, the latter got rid of its five cent piece.
Earlier this year a Canadian Senate committee on national finance embarked upon a study on the costs and benefits of that state’s penny. “By some estimates, the production and use of the penny represents hundreds of millions of dollars every year in direct costs to taxpayers and lost productivity,” said Senator Irving Gerstein, starting the debate.
Russell Burke of the Irish Payments Service Organisation (IPSO) says it does not have a specific position on the phasing out of small change but adds that anything which moves people away from cash, which he describes as cumbersome and costly, in the direction of card-based transactions, is to be welcomed.
“I think that scrapping the one and two cent coins might help slightly as long as it does not lead to increased prices, which I don’t think it would in the current climate.”
He points to some of the key advantages of dropping the smaller coppers. “It would speed up transactions at tills if everything was rounded to the nearest five cent which would lead to an increase in efficiency. There is also a lot of dead money in coins in jars and money boxes that is not doing anyone any favours.”
We do, however, love our cash. When the euro was introduced the most commonly withdrawn note from ATMs went from being the £20 note to the €50 note but the number of notes taken from machines stayed the same.
In 2009 Irish people took out €5,644 each on a per capita basis. The EU average was €2,604, suggesting a much more intense love affair with the folding stuff in this country. The total spend on all cards – both credit and debit – meanwhile was €23 billion while the amount taken from ATMs was €25 billion.
Charities might be the big losers if one and two cent coins do eventually go the way of the farthing. The Royal National Lifeboat Institution places a lot of collection boxes at tills in Irish shops and a spokeswoman expressed concern that the disappearance of the coins might be bad news for its funding.
“Any measure that would limit people’s options to donate to a charity could arguably have a negative impact on fundraising. For the RNLI, every cent a person donates to saving lives at sea counts,” she said.
A spokesman for Oxfam Ireland agrees. He says if one and two cent coins disappeared “it would affect charities such as ourselves”. He says charities “would see less impulse donations of ‘have what’s in my pocket’ at shop till collections. We have collection jars in all our stores and we would expect less in those if the copper disappeared.”