What to do with 1c coins now we're in the ha'penny place?

IN WHAT must be one of the most penny-pinching budgets ever, the Canadian finance minister, Jim Flaherty, killed the 1c coin last week. After this month the Royal Canadian Mint will cease its production, and retailers will start to round prices up or down as it goes out of circulation.

In championing common sense over the common cent, Flaherty has done a noble act indeed: he has rung the death knell for the most exasperating little coin of all.

Should we follow suit? A few months ago I was moving out of the house I’d lived in for seven years, and I had to decide what to do with the two pint glasses on top of my bookshelf, both full to the brim with useless coppers. They were like a pair of ornaments commemorating transactional inefficiency.

The local Centra had one of those coin-counting machines that gobble up coppers and spit out a receipt to be redeemed at the till. I had only ever seen it being used by some of the local panhandlers, turning their income into something usable. After pouring seven years’ worth of 1c and 2c coins into its hungry maw, the total came to more than €14. Then the machine took its 12.5 per cent commission, and I ended up with €12.50 or so.

For a moment it felt like a windfall. Then I realised that those panhandlers are giving a sizeable cut of their meagre income to this machine, just because the coins they were getting were so useless in their own right. When small-denomination coins are so inefficient that beggars are getting shafted trying to use them, they really are past their point of utility.

The inefficiency is felt at a national level too. Flaherty, the Canadian minister, pointed out that a 1c coin costs 1.6c to make; the cost to his government of making the $18 million in pennies that the Royal Canadian Mint churned out every year was $29 million.

This is what’s called negative seigniorage – roughly speaking, the difference in price between the cost of producing the money and what it represents. Making a €100 note, say, costs only a few cent, so the ECB is in positive seigniorage with the paper money. But coins are made of metal, and a lot of metals, such as copper and zinc, are going up in value while the coins they make up are falling in value because of inflation – hence central banks end up in negative seigniorage on the coins.

But even if they could be made for less than the value they represent, the smallest coins are so effectively useless that huge numbers of them get lost for eternity in dusty couches and piggy banks. If you’re on the minimum wage in Ireland, you need to be able to bend down and pick up a 1c coin in less than four seconds for it to be worth your while; any more than that and you’ve just wasted vital seconds, not to mention energy. If you’re a high earner, you probably shouldn’t even look at the things.

There is a long-standing argument that abolishing small coins would lead to a rise in inflation, as retailers go about rounding up all those 99c prices. (I’ve always been slightly baffled by the €X.99 practice, called psychological or signal pricing; it speaks poorly for the cognitive abilities of our species if we are so easily duped by a 1c reduction in the price of something.)

When the euro was introduced, small-denomination coins were included to reduce the inflation risk of widespread rounding up as countries switched to the new currency. We’re not all so vulnerable to such cheap pricing gimmicks, however: the Finns introduced a price-rounding law just as the euro came in, so they never really used the little guys, and the Dutch followed suit in 2004, calculating that it would save about €30 million a year. Their inflation rates haven’t been streaking ahead of the European average over the past decade.

We have been here before, of course: we got rid of the old ½p coin in 1987. I am just old enough to remember it, with the Book of Kells-style bird contorted on one side. I guess I was the right demographic to use them, as it was the last days of the ha’penny sweet, so they actually had some sort of utility for a child my age.

But, in retrospect, maybe the abolition of the ha’penny was the start of all our problems, a small signal that our days of penury were over, that we were embracing economic maturity as a nation. We all know where the resulting irrational exuberance ultimately led us a quarter of a century later: back to penury.

So instead of following the Canadians into a world without tiny, irritating, useless coins, we should maybe double down and introduce the ½c coin. We wouldn’t be able to buy anything with it, but it might serve as an enduring reminder that vast riches don’t really suit us. And, in any case, it wouldn’t even remotely be the most profligate way we’ve blown our money of late.

Shane Hegarty is on leave