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On the future of smallest denominations in Western Europe

by Björn Schöpe

May 16, 2013 – The smallest coins are becoming a species threatened with extinction. All over the world the coins with the lowest face value are being abolished due to the high metal costs which make production costs exceed the face value rendering these coins thus a loss-making activity for the state.
Canada has abolished its traditional penny, Russia has given up the 1 and 2 kopek coins, the USA are thinking about the end of the penny, and Poland decided just in the last moment to keep the 1 and 2 grosz coins. In Switzerland the days of the smallest coins have been numbered and now the future of the 1- and 2-cent coins is open, too.

Last year the EU Parliament and the Council of Ministers requested the EU Commission to investigate costs and acceptability of the smallest denominations. The EU Commission has now given a first statement regarding this investigation. On May 14 Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro, stated: ‘The Commission has consulted business and consumer associations, treasuries, mints and central banks on the pros and cons of continued issuance of the 1 and 2 cent coins. We will now take forward this discussion with stakeholders and Member States and see whether a clear preference emerges on which to base a legislative proposal.’

Since 2002 when euro coins were issued the production of 1- and 2-cent coins has amounted to an estimated cumulative loss of 1.4 billion euro. According to the report this is not primarily based on the material (metal) cost but the whole production process. The Commission proposes four scenarios: everything remains as it is; changes will lead to reduced production costs probably through modification in the production process rather than cheaper materials like stainless steel or aluminium; both denominations will be eliminated immediately; or they will be faded out gradually. In the first two cases daily use would not be affected, at the most appearance and characteristics of the coins might change. In the other two cases the coins would share in the fate of the Canadian penny which remained legal tender but is no longer minted and issued. Vending machines do not accept the small coins anyway.
The report of the EU Commission states clearly that acceptance among the people is high and people fear an inflation by rounding up prices. To prevent this new rounding rules would be required.

In 2006 the Federal mint Swissmint proposed to the Federal Council to abolish not only the 1-Rappen but also the 5-Rappen. The production costs of the copper-aluminium-nickel alloy exceeded in both cases the face value. The 2-Rappen had been eliminated as far back as in 1978 already, and in 2007, the 1-Rappen shared in the same fate. The 5-Rappen, however, the Federal Council decided to keep.
Roland Büchel, deputy from St. Gallen of the national conservative Swiss People’s Party, suggested formally to eliminate the 5-Rappen since it is no longer being used in daily life and even vending machines do not accept it. Nevertheless, the Swiss Federal Council has refused to accept this view. Hence the 5-Rappen stays and makes a stand against the trend of abolishing the small coins. Cultural value? Identity-establishing? At least according to the Federal Council no other coin is being so often requested from the National Bank as the 5-Rappen. That fact speaks for itself. What better argument do you have than a broad acceptance among the people? And, anyway, the production is no longer a loss-making activity. On the other hand eliminating the coin – in 2006 there were more than 868 million in circulation – could have much more expensive consequences – and partly for the private people too.

How the EU Commission will value pros and cons remains to be seen. 1- and 2-cent coins are more or less equal to the already abolished 1- and 2-Rappen coins. Hence, maybe Western Europe is harmonising its smallest denominations on the level of 5-Cent/Rappen. Naturally, of course, with one exception: Great Britain. In the UK they keep their penny and 2-pence coins (at least for the time being) which still represent the largest part of the coins issued in 2013.

The EU Commission has published their press release here.

A detailed version of the communication is published here.

On the decision of the Federal Council reported the Swiss newspaper NZZ.

On the plans of abolishing the 5-Rappen in 2006 reported also the NZZ.

You can find mintage figures for British coins issued in 2013 on the website of the Royal Mint.

You can find more interesting articles about eliminating circulation coins here.

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