COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Issues related to the continued issuance of the 1 and 2 euro cent coins /* SWD/2013/0175 final */
Table of Contents I.
INTRODUCTION ……………………………………………………………………4 1. Mandate. 4 2. Approach
and methodology. 4 3. Stakeholder
consultation based on questionnaire. 5 4. Four
possible scenarios for the 1 and 2 euro cent coins 6
II. TWO SCENARIOS OF CONTINUED ISSUANCE OF THE 1
AND 2 EURO CENT COINS……………………………………………………………………….8 1. Scenario of continued issuance under
unchanged conditions ("Status quo scenario") 8 1.1. The legal framework of euro coin denominations. 8 1.2. Overview of issuance on 1 and 2 euro cent
coins. 9 1.3. The two smallest coin denominations:
comparison between euro and other currencies 10 1.4. Low value coins and the loss of purchasing
power. 11 1.5. Appropriateness of the coin denomination
structure. 12 1.6. Domestic demand and the loss rate. 14 1.7. Rounding of fractional prices. 15 1.7.1.The situation in Finland and the Netherlands. 15 1.7.2.The situation in the other euro area Member States. 17 1.7.3.Rules to be applied in line with the principle of
legal tender of euro cash. 17 1.8. Cost factors of 1 and 2 euro cent coin issuance. 18 1.8.1.Coin production and issuance costs. 18 1.8.2.Understanding the variation in costs. 20 1.9. The citizens' experience with the use of the
1 and 2 euro cent coins. 21 1.10. Usefulness
of continued issuance. 22 2. Scenario
of continued issuance at reduced costs ("Issuance at reduced costs") 23 2.1. Reducing issuance costs by changing the coin
composition. 24 2.2. Reducing issuance costs by increasing
efficiency of coin production 25
III. TWO SCENARIOS OF WITHDRAWAL OF THE 1 AND 2
EURO CENT COINS……….……………………………………………………………………...26 1. Scenario
of withdrawal with loss of legal tender ("Quick withdrawal scenario") ………………………………………………………………………………………26 1.1. Economic implications. 26 1.1.1. Inflation: real or
perceived?. 26 1.1.1.1. View of the European
Central Bank and euro area Member States. 27 1.1.1.2. View of consumer and
retailer associations. 29 1.1.2. Impact on state income:
tax revenues and seigniorage. 30 1.1.3. Impact on private
stakeholder business. 31 1.2. Social impact 32 1.3. Impact on other coin denominations and the
use of other means of payment 33 1.4. Implementing measures accompanying a possible
withdrawal scenario. 34 1.4.1. Legislative act by the
European legislator 34 1.4.2. Implementing measures
to be taken by public key stakeholders. 34 1.4.3. Implementing measures
to be taken by private key stakeholders. 36 1.5. Experience with withdrawal of low value coins. 37 1.5.1. Euro area Member States prior to the euro
changeover 37 1.5.2. Other EU Member States and European countries. 37 1.5.3. Withdrawal experience outside Europe. 38 1.6. Continued issuance or cessation. 40 2. Scenario of withdrawal through fading out while
keeping legal tender ("Fading out scenario") 42 2.1. Need
for euro area rounding rules and practical consequences for the cash user. ……………………………………………………………………………………43 2.2. Duration of the fading out scenario and role
of the loss rate. 43 2.3. Specific cost aspects of the fading out
scenario 45
IV. CHARACTERISTICS
AND OVERVIEW OF THE FOUR SCENARIOS ….45 V.
General conclusions ……………………………………………………...50 I.
Introduction
1.
Mandate
The introduction of the
euro in 1999 was a major step in European integration. Since 1 January 2002 the
euro has been available in physical form, as banknotes and coins with now
around 330 million EU citizens in 17 of the EU Member States using the euro as
their currency. The euro coins denominations are determined by the Council in
accordance with Article 128(2) of the Treaty on the Functioning of the European
Union and include eight denominations in the range from 1 cent to 2 euro. The
denomination of euro coins is laid down in Council Regulation (EC) No 975/98. Recital 7 of Regulation
(EU) No 651/2012 of the European Parliament and of the Council of 4 July 2012
on the issuance of euro coins (2012 OJ (L 201) 135) states that the use of
different denominations of euro coins and euro banknotes should be periodically
and carefully examined by the competent institutions against the criteria of
cost and public acceptability. Against this background and in accordance with Article 2,
paragraph 2 of the Regulation, the European Commission "shall conduct
an impact assessment on the continued issuance of 1 and 2 cent coins. That
impact assessment shall include a cost-benefit analysis which takes into
account the real production costs of those coins set against their value and
benefits." This mandate
should be seen against the background of the current debate surrounding the
usefulness of the two smallest euro coin denominations since their
introduction. The main elements of this debate are the high production and
processing costs of the one and two euro cent coins compared to their face
value, the significant loss rate of these coins[1], the
decrease of the purchasing power of these two denominations and, should the
coins be withdrawn, the concern among the general public that the cessation of
issuance of the 'red coins' could raise consumer prices (problem of perceived
inflation). In line with
this mandate, the Commission hereby submits an assessment on the continued
issuance of 1 and 2 euro cent coins taking costs and benefits as well as the
public acceptance of these two denominations into account.
2.
Approach and methodology
In accordance with the
mandate, the analysis is a fact-finding and stock-taking exercise on the
continued issuance of the two lowest euro cent denominations. Against the background
of the debate on these coins, the analysis investigates a range of possible
scenarios implying (a) no change; (b) maintaining current issuance levels but
reducing issuing costs; (c) immediate cessation of issuance and withdrawal from
circulation; and (d) immediate cessation of issuance but gradual withdrawal
from circulation. The analysis has been
conducted from a cost/benefits and public acceptability perspective. Even
though the mandate specifically focuses on the real production costs compared
to benefits, the term costs is to be understood in a broader sense with the
cost/benefits analysis embracing not only the costs of coin minting
but also the costs of issuance, re-circulation as well as the handling and packaging
costs.s. The facts and figures
and other reported data of the analysis have three main sources: 1) a compilation
of existing statistics, including ECB databases; 2) results from a
questionnaire conducted with key stakeholders; 3) analysis of the Eurobarometer
surveys on coin usage and acceptance. Indeed, the citizens' views on the
issuance of 1 and 2 euro cent coins were captured by relying on the analysis of
Eurobarometer surveys on the use of euro coins. The European Commission's Flash
Barometers (2003-2012) provide systematic survey data over the period 2002-2011
that include a number of important questions on the use of euro coins.
3.
Stakeholder consultation based on questionnaire
A group of
'key stakeholders' was consulted on the issue of continued issuance and a potential
withdrawal scenario by using a questionnaire. The stakeholders were identified
and divided into two main groups: public key stakeholders (from EU Member
States and the ECB) and private key stakeholders (from European associations
and business). Chart 1 Groups of key stakeholders Private actors (represented by their respective European association) || Public actors (National and European) Banks || Treasuries Retailers || National mints Cash-in transport companies || National central banks Vending machine business || European Central Bank Small and medium enterprises || Consumers || The questionnaires
for the 'key stakeholders' were tailor-made to take into account the specific
role of the stakeholder with regard to the use of 1 and 2 euro cent coins.
Besides the two more general key questions "Do you consider the
issuance of 1 and 2 euro cent coins useful?" and "Would you
prefer issuance of 1 and/or 2 euro cent coins to be continued or ceased?",
the questionnaires embraced two groups of questions: on the current use of 1
and 2 euro cent coins and on a scenario where the issuance of 1 and/or 2 euro
cent coins were to cease (see annex for a summary of the questions). The response rate
varied considerably between the different groups of key stakeholders with
comparatively low response rates in certain groups. Often, the respondents
submitted general observations and statements in broader terms rather than, as
requested where appropriate, providing facts and figures. Chart 2: Response rate
of key stakeholder groups ·
Euro area Member States: 65% (n=17)[2] ·
Other member states: 50% (n=10) ·
National mints: 50%
(n=12) ·
National banks: 58% (n=17) ·
Banking associations: 25% (n=4) ·
Consumer associations: 100% (n=2) ·
Retail associations: 33% (n=3)
4.
Four possible scenarios for the 1 and 2 euro
cent coins
In principle,
issuance and use of 1 and 2 euro cent coins could continue as at present or
stop completely. Against this background, there are two main scenarios to be
explored. However, based on the results of the questionnaires and the
stock-taking exercise, four possible scenarios can be identified: the two main
scenarios with one variant of each. The first
main scenario ("status quo scenario") is the continued issuance of
the 1 and 2 euro cent coins under today's issuance conditions without changing
the legal and/or material context. The coins remain legal tender and continue
to be produced in line with the current technical specifications (such as
metal, weight and size) and without changing the production and issuance
processes. A variant of
this scenario is the continued issuance at reduced costs ("issuance at
reduced costs"). The cost reduction could be realised by changing the
material composition of the coin or by increasing the efficiency of coin
production or both. The second
main scenario ("quick withdrawal scenario") aims at the abolition of
the 1 and 2 euro cent coins. Under this potential scenario, the issuance of
these denominations ceases while the coins are withdrawn from circulation
mainly through retailers, supermarkets and banks within a pre-established time
period. Following experience with the withdrawal of national low value coins
gained in various countries, this time period would be rather short.[3] Binding
rounding rules would apply as of the first day of the withdrawal period and 1
and 2 euro cent coins would cease to be legal tender at the end of this period.
If considered appropriate, this scenario could also provide for the possibility
to change coins still in circulation after the withdrawal period has ended at
the central banks for a limited or even unlimited period.[4] A variant of
the quick withdrawal scenario is a "fading out scenario" which would
have the effect of withdrawal but achieve it by different means. Rather than
steering the withdrawal through a 'call-back exercise', the mere cessation of
issuance and 'market forces' together with a constant high loss rate would
suffice to remove 1 and 2 euro cent coins from circulation. The coins would
disappear from circulation over time and without any supporting intervention,
because no new coins would be issued and injected into the market. The fading
out scenario is based on the assumption that cash users question the usefulness
of 1 and 2 euro cent coins as a means of payment, the proof of which would be
the very high loss rate of these coins. Under this potential scenario, issuance
of the 1 and 2 euro cent coins ceases but the coins remain legal tender while
legally binding rounding rules apply as of cessation of issuance. The 1 and 2
euro cent coins could still be used, but only for payment to the rounded final
sum. The chart
below provides an overview of the four possible scenarios that are investigated
in this paper. Chart
3 1 and 2 euro cent coins: 4 scenarios Continued issuance || Scenario 1: "Status quo scenario" Continued issuance under unchanged conditions Scenario 2: "Issuance at reduced costs scenario" Continued issuance at reduced issuance costs Withdrawal || Scenario 3: "Quick withdrawal scenario" Issuance ceases and withdrawal with loss of legal tender and applying rounding rules Scenario 4: "Fading out scenario". Issuance ceases and fading out of coin circulation while keeping legal tender and applying rounding rules This staff
working paper provides an analysis of all four scenarios. The analysis starts
with the two scenarios of continued issuance focusing initially on the status
quo and then the variant scenario. The analysis then turns to an assessment of
the two withdrawal scenarios, followed by an overview on all four scenarios.
The overview identifies the necessary implementation measures for each scenario
and highlights their advantages and disadvantages. The paper concludes with
presenting the key findings of the overall assessment. II.
Two scenarios of continued issuance of the 1 and
2 euro cent coins
1.
Scenario of continued issuance under unchanged
conditions ("Status quo scenario")
Under this
scenario, the 1 and 2 euro cent coin continue to be issued without making any
changes to the legal context or the production process of the coins. The coins
remain legal tender and continue to be produced further to the current
technical specifications (diameter, thickness, weight, shape, colour and metal
composition)[5] and without
changing the production and issuance processes. The Status Quo Scenario is
investigated because it constitutes a useful benchmark for evaluating the three
alternative scenarios. 1.1. The legal framework of euro coin denominations The determination of
the denomination of euro coins is the exclusive competence of the European
Union pursuant to Article 128, paragraph 2 of the TFEU[6]. In accordance
with this provision, Council Regulation (EC) No 975/98 has laid down the details
of the euro coin denominations and set the number of denominations at eight. Chart 4 Denomination of euro coins Face value: euro cent || Face value: euro 1 cent 2 cent 5 cent 10 cent 20 cent 50 cent || 1 euro 2 euro[7] In line with Article 128,
paragraph 2 of the TFEU, only the Council, on a proposal from the Commission
and after consulting the European Parliament and the European Central Bank, may
adopt measures to harmonize the denominations of all coins intended for
circulation to permit their smooth circulation within the Union. The number of euro coin
denominations has remained unchanged since the introduction of the euro. All
eight coin denominations are legal tender in the euro area. In line with the Commission's Recommendation on the scope and effects
of legal tender of euro banknotes and coins[8], all eight denominations should be accepted for payment and, as stated
in Council Regulation No 974/98 on the introduction of
the euro, within the margin of maximum 50 coins per
payment except for the issuing
authority and for those persons specifically designated by the national
legislation of the issuing Member State.[9][10] 1.2. Overview of issuance on 1 and 2 euro cent coins Since January 2002, the
central banks of the euro area Member States have issued more than 46 bn coins
with 1 and 2 euro cent denominations. This represents about 137 coins of these
denominations per capita in the euro area. Although the number of issued 1 and
2 euro cent coins is very high, the total value of these coins is only about
EUR 714 million. This is only 2.8% of the value of all euro coins in circulation.
In terms of value, the
total of euro coins in circulation has nearly doubled since the introduction in
January 2002 from EUR 12,3 bn to EUR 23,5 bn in August 2012, The total value of
1 and 2 euro cents compared to the value of all euro coin denominations issued
has increased by 94.5% over the same period, moving from 1,45% to 2,81 % (see
Chart 4). (Within the same period, the total circulation of euro banknotes
quadrupled in value from EUR 221,5 bn to EUR 896,4 bn.) Chart 5: Value of 1
and 2 euro cents (% over total value of coins) || 2002 || 2012 || Increase (%) || January || August 2 cents || 0.50% || 1.09% || 119.1% 1 cent || 0.95% || 1.72% || 81.5% Total (1 and 2 cents) || 1.45% || 2.81% || 94.5% Source: European
Central Bank and Commission calculations With
on average 1 coin out of 3 being a 1 or a 2 euro cent coin, the number of these
coins has been already high in the first years after the introduction of the
euro. Today, the ratio is already close to 1 out of 2 given that both coins now
make up for 45.6% of the total number of coins in circulation (see table 5). Chart 6: Number of 1 and 2 euro cent (% over total number of coins) || 2002 || 2012 || Increase (%) || January || August 2 cents || 16.07% || 25.46% || 36.9% 1 cent || 15.31% || 20.09% || 23.8% Total (1 and 2 cents) || 31.38% || 45.55% || 31.1% Source: European Central
Bank and Commission calculations The
high increase of 1 and 2 euro cent coins is due to the high loss rate of these
denominations, as these coins appear to be often hoarded rather than
re-circulated. 1.3.
The two smallest coin denominations: comparison
between euro and other currencies An
analysis has been undertaken that aims at comparing the value of the 1 and 2
euro cent coins with the two smallest denominations in a broad range of
countries, so as to assess the structure of euro coins denominations against
international practices. The set of analysed countries includes the, the
non-euro area EU Member States, other European countries and other G20
countries. The value of the two smallest denominations was calculated in euro
cent (for the calculation in purchasing power parity, see annex). It appears that that the value of the two smallest denominations is
substantially higher in the Nordic Countries (Norway, Sweden, and Denmark) as well as in New Zealand and Switzerland than in the euro area. However, when
comparing with USA and Japan, the differences with the euro area are much less
pronounced. While the value of the smallest denomination in those countries is
a little bit smaller than in the euro area, the value of the second smallest
denomination is slightly higher than in the euro area. In comparison with the
other countries, the value of the two smallest euro coin denominations is not exceptional. Chart 7:
International comparison of the value of two smallest coin denominations by
country (in € cent equivalent) Source:
European Central Bank and Commission calculations Chart 8:
International comparison of the two smallest denominations by country (in €
cent equivalent) Code || Country || Euro (cents) || || Code || Country || Euro (cents) Smallest denomination || || 2nd smallest denomination NO || Norway || 12.83 || || NO || Norway || 64.16 SE || Sweden || 11.07 || || SE || Sweden || 22.15 DK || Denmark || 6.71 || || DK || Denmark || 13.42 NZ || New Zealand || 5.68 || || NZ || New Zealand || 11.36 CN || China || 5.56 || || CN || China || 11.12 CZ || Czech Republic || 4.07 || || CZ || Czech Republic || 8.13 CH || Switzerland || 4.06 || || CH || Switzerland || 8.11 HU || Hungary || 1.79 || || JP || Japan || 4.51 LV || Latvia || 1.42 || || CA || Canada || 3.63 Euro || Euro Area || 1.00 || || US || United States || 3.59 SA || Saudi Arabia || 0.96 || || HU || Hungary || 3.58 JP || Japan || 0.90 || || IS || Iceland || 3.10 AR || Argentina || 0.87 || || LV || Latvia || 2.83 ME || FYROM || 0.81 || || BR || Brazil || 2.15 AU || Australia || 0.74 || || TK || Turkey || 2.14 CA || Canada || 0.73 || || Euro || Euro Area || 2.00 US || United States || 0.72 || || SA || Saudi Arabia || 1.92 IS || Iceland || 0.62 || || AR || Argentina || 1.74 UK || United Kingdom || 0.58 || || ME || FYROM || 1.63 BG || Bulgaria || 0.51 || || AU || Australia || 1.48 ZA || South Africa || 0.50 || || RO || Romania || 1.18 BR || Brazil || 0.43 || || UK || United Kingdom || 1.15 TK || Turkey || 0.43 || || BG || Bulgaria || 1.02 ID || Indonesia || 0.41 || || ZA || South Africa || 0.99 LT || Lithuania || 0.29 || || ID || Indonesia || 0.82 MX || Mexico || 0.29 || || LT || Lithuania || 0.58 PL || Poland || 0.24 || || MX || Mexico || 0.58 RO || Romania || 0.24 || || PL || Poland || 0.49 IN || India || 0.15 || || KO || Korea || 0.32 HR || Croatia || 0.13 || || IN || India || 0.31 KO || Korea || 0.06 || || HR || Croatia || 0.27 RU || Russia || 0.02 || || RU || Russia || 0.12 Source:
European Central Bank and Commission calculations. 1.4. Low value coins and the loss of purchasing power As
will be illustrated later in this paper (see section III.5), there are many
examples of low value coin denominations from other currencies that have been
withdrawn over time. It appears that an important consideration in this process
has been the gradual loss of purchasing power of these small coins as a
consequence of inflation, together with a widening gap between the price of the
metal used for production of the coins and the declining purchasing power of
the denomination. For example, the Canadian Government decided to withdraw the
one cent coin ('penny') as of February 2013 because of its rising production
costs relative to face value but also because of inflation. Due to the latter,
the purchasing power of the 'penny' has eroded over the
years retaining today only about one-twentieth of its original purchasing
power. Smaller
denominations are by definition more prone to falling into disuse by the effect
of inflation since their face value is already very low. The following chart
shows the evolution of inflation in the euro area since the introduction of
euro cash expressed in the value of the 1 euro cent coin. It shows the extent
to which the coin has lost purchasing power over that period. Today's
purchasing power of the 1 euro cent coin is on average 0.81 euro cent. Given
the existence of inflation differentials within the euro area, the loss of
purchasing power has been more pronounced in countries with higher inflation
rates. Though inflation has remained at a very low level since the launch of
the euro, the purchasing power of 1 and 2 euro cent coins has already eroded
substantially. Chart
9: Development of the purchasing power of the euro since the introduction of
euro cash (in 1 euro cent) Country || 2002 || 2005 || 2008 || 2012 IE || 1.00 || 0.93 || 0.86 || 0.86 DE || 1.00 || 0.95 || 0.90 || 0.84 NL || 1.00 || 0.95 || 0.91 || 0.83 FR || 1.00 || 0.94 || 0.89 || 0.83 FI || 1.00 || 0.98 || 0.92 || 0.82 Euro area || 1.00 || 0.94 || 0.88 || 0.81 PT || 1.00 || 0.93 || 0.87 || 0.81 AT || 1.00 || 0.95 || 0.89 || 0.81 BE || 1.00 || 0.94 || 0.87 || 0.79 CY || 1.00 || 0.93 || 0.87 || 0.79 IT || 1.00 || 0.93 || 0.87 || 0.79 MT || 1.00 || 0.93 || 0.85 || 0.79 ES || 1.00 || 0.91 || 0.84 || 0.76 LU || 1.00 || 0.91 || 0.85 || 0.76 EL || 1.00 || 0.91 || 0.83 || 0.75 SI || 1.00 || 0.90 || 0.81 || 0.74 SK || 1.00 || 0.83 || 0.76 || 0.69 EE || 1.00 || 0.91 || 0.73 || 0.66 Note: Data for December
of each year. Source: ECB and European
Commission calculations 1.5. Appropriateness of the coin denomination structure Despite long-standing
research on the "ideal" coin denomination, experts still diverge when
trying to define the optimal denomination structure. As a matter of fact, most
countries in the world use a currency denomination based on the 1-2-5 ratios or
1-2.5-5 ratios between one denomination and the next. There has been a considerable
amount of research on the topic, a good summary of which is provided by Van
Hove (2001). [11] A widely discussed
approach to analyse the appropriateness of a denomination structure has been
proposed by Hentsch (1973). Hentsch observed that if the ratios of successive
denominations are more or less constant, then the amounts in circulation for
each denomination should generally be proportional to the square root of the
denomination. He defined an indicator of "corrected circulation" (CC)
constructed as the amount in circulation per each denomination (V) divided by
the square root of the denomination.[12]
When the value of the indicator for a specific denomination is considerably
higher than the values calculated for the other denominations, this would
suggest that there could be a need for a higher denomination. Conversely, when
the value of the indicator for a denomination is considerably lower than the
values calculated for the other denomination, this would suggest that there
could be a rationale for withdrawing the denomination concerned. Although not being a
general rule, denomination anomalies are more likely to manifest themselves at
the upper or lower end of the denomination structure. One reason for an anomaly
could be linked to inflation. Higher inflation leads to an overall loss of
purchasing power of the smallest denominations which would induce consumers to
prefer higher denominations thus pushing the entire denomination structure
upwards. While it certainly applies to the country level within the euro area,
where inflation differentials have persisted for a long time, it is somewhat
less true for the euro area as whole since inflation has been relatively stable
over the last decade. The chart below shows
the result for the calculations of the Hentsch indicator at the Euro area level
over time. The values of the Hentsch index are significantly lower for the 1 euro
cent coin (2 598 743) and 2 euro
cent coin (2 890 147) than for
the other euro coins (between 3 681 599 and 6 886 736). These results would point to the existence of a rationale for
withdrawing these two denominations.[13] Chart 10:
Appropriateness of the euro denomination (calculated by 'Hentsch' indicator) || || Appropriateness Euro || || 2002 || 2005 || 2007 || 2009 || 2012 || || || || || || 500 || || 3731178 || 8281135 || 10121602 || 12606556 || 13182834 200 || || 1709055 || 2103977 || 2201731 || 2520647 || 2617013 100 || || 6731707 || 10184424 || 12093299 || 14718611 || 16774507 50 || || 17215979 || 25627815 || 31411332 || 36765598 || 43409189 20 || || 8831415 || 9658371 || 11035786 || 12030980 || 12384792 10 || || 5196543 || 5569918 || 6215317 || 6458248 || 6367981 5 || || 2662198 || 2872593 || 3177654 || 3348703 || 3440856 2 || || 3499325 || 4664960 || 5389039 || 6030803 || 6886736 1 || || 3586526 || 4909868 || 5717568 || 6184311 || 6412731 0,5 || || 2598428 || 2999949 || 3293128 || 3539022 || 3746346 0,2 || || 2243797 || 3035820 || 3512867 || 3875099 || 4254611 0,1 || || 1749219 || 2658976 || 3139071 || 3497939 || 3900785 0,05 || || 1355944 || 2267250 || 2763496 || 3179161 || 3681599 0,02 || || 947662 || 1644100 || 2035550 || 2404215 || 2890147 0,01 || || 706717 || 1393958 || 1757898 || 2105860 || 2598743 1.6. Domestic demand and the loss rate A large majority of
Member States and national mints pointed out that there is a stable or
increasing demand for 1 cent coins. In some smaller Member States, the demand
is strongly influenced by withdrawals from non-domestic customers from
neighbouring countries. This is not the case in the two euro area Member States
which actively limited the circulation of 1 and 2 cent coins. With a few
exceptions, there have generally been no shortages or surpluses. In one Member
State, there were supply disruptions in the past that were caused by strikes.
In some cases, reduced production of coins is offset by imports from other euro
area Member States. Demand of private
business for the 1 and 2 euro cent coins is relatively stable, with an increase
in a few euro area Member States. However, the private sector replies to the
questionnaire point to a variation across Member States. It was also reported
that customers do not seem to use the 1 or 2 euro cent coins much while paying,
but rather receive them as change from the retailers. In addition, it seems
that - once the customer has received those coins – they are often hoarded in
cash collection devices such as piggy banks and others for possible future
spending or for charity donations. However, it appears that in those countries
which are more severely affected by the financial and economic crisis, the
smallest euro coins are beginning to playing a more important role. In those
countries, the consumers' financial situation has worsened and consumers
started to increasingly use the smallest denominations and ask for small coin
change in retail stores. The loss rate for 1
euro cent coins varies between 30% up to 100% in Euro area Member States.
However, the majority of euro area Member States reported a loss rate higher
than 50% as 1 euro cent coins are often hoarded and sometimes, as stated by one
euro area Member State melted by hoarders for resale of the metal since their
face value is lower than the value of the metal used for the production of the
coin. The loss rate for 2 euro cent coins varies between 25% and close to
100% in in euro area Member States. The majority of euro area Member States
reported a loss rate of above 50%, which nonetheless would be a little bit
lower than the loss rate of the 1 cent coins. 1.7. Rounding of fractional prices Fractional
prices are prices, which if paid in cash to the exact amount, would require the
use of one or more 1 and/or 2 euro cent coins at the moment of payment.[14] Fractional
prices play an important psychological and economic role mainly in the retail
sector to make prices look cheaper and the product more attractive as they
allow for an advantageous use of the digits 8 and 9, namely with regard to
consumer products of smaller value (such as products put out for purchase at
e.g. EUR 0,89, EUR 2.98, EUR 3.99 or EUR 19.98).[15] Fractional prices play
an important role if payment is made in cash (including coins), when a client
buys one item or, several products with a fractional final sum.[16] As a
principle, any change would have to be given in cash and at the exact amount,
which means that small denominations including the 1 and 2 euro cent coins must
be available at the point of sale to handle each cash transaction of any
possible amount. 1.7.1. The
situation in Finland and the Netherlands As a rule, cash
payments in the euro area can always be made to the exact amount.[17] The situation
of the issuance and use of 1 and 2 euro cent coins in Finland and the
Netherlands is different from the situation in the other countries of the euro
area. At the euro changeover in 2002, Finland issued 1 and 2 euro cent coins in
smaller quantities and mainly for coin kits but it ceased further issuance of
these two denominations to the public shortly after the changeover.
Sporadically, 1 and 2 euro cent coins are being issued in Finland in very
limited quantities for coin kits intended for collectors. The Netherlands
issued 1 and 2 euro cent coins initially, but stopped further issuance in 2004. Finland and the Netherlands
consider the costs of production and handling of 1 and 2 euro cent coins to be
too expensive compared to the face value of the coins and the benefit these
denominations have for payments and cash transactions in their countries. While
all eight euro coin denominations remain legal tender in Finland and in the
Netherlands, the two countries limited the circulation of the 1 and 2 euro cent
coins by introducing rounding rules.[18] The Finnish Act 890/2000 of 27 October
2000 on the rounding of payments denominated in euro, as entered into force on
1 January 2002, provides that cash payments denominated in euro shall be
rounded downwards or upwards to the nearest multiple of 5 euro cent. While
prices of goods and services can still be set, agreed and displayed while using
any 0 to 99 cent for calculation[19],
the total sum of the payment is rounded to the nearest EUR 0.05 when paying
with cash. Sums ending in EUR 0.01, EUR 0.02, EUR 0.06 and EUR 0.07 are rounded
down; sums ending in EUR 0.03, EUR 0.04, EUR 0.08 and EUR 0.09 are rounded up.
Payments in the amount of 1 and 2 euro cents shall not be rounded. In principle,
the rounding applies also to electronic payments except if the payment is
effected by credit transfer between accounts, but contrary to cash payments
rounding by non-cash means is not mandatory (payments "may" rather
than "shall" be rounded).[20] It is local
custom in Finland that payments by bank card or other payment cards are not
rounded but debited to the exact amount ending in cent. Whereas Finland has
introduced legally binding rounding rules for cash payment, rounding rules
apply on cash payments in the Netherlands since September 2004 on a voluntary
basis, which is largely accepted by citizens and business. Voluntary rounding
rules were introduced accompanied by a public campaign after a pilot project on
cash payment without 1 and 2 euro cent coins, while applying rounding rules was
carried out and tested in a retailer district of the Dutch city of Woerden in
2004. As in Finland, prices of
goods and services in the Netherlands can still be set, agreed and displayed
while using any 0 to 99 cent for calculation. However, since 1 September 2004 business in the Netherlands is free to decide to round
the final sum of a cash payment to the nearest multiple of 5 euro cents. Sums ending in EUR 0.01, EUR 0.02, EUR 0.06 and EUR 0.07 are rounded
down; sums ending in EUR 0.03, EUR 0.04, EUR 0.08 and EUR 0.09 are rounded up In practical terms, nearly all small and big retailers in the
Netherlands have moved to rounding the final sum of payment and do not handle 1
and 2 euro cent coins anymore. The rounding does not apply to payments by
electronic means such as payment by debit card, e-purse, mobile phone or credit
card. It appears that the voluntary rounding practice, as established in
September 2004, is generally well-accepted by citizens and business as a
customary habit in the Netherlands. 1.7.2. The
situation in the other euro area Member States Only a few euro area
Member States provided replies to the question on the existence of rounding
rules of cash and/or electronic payments. From the responses received, it
appears that there are no Member States, other than Finland and the Netherlands,
which apply rounding rules in cash payments with regard to the use of 1 and 2
euro cents in their country. It seems, however, that in some countries habits
of "voluntary" rounding can be found typically at the local level for
example in supermarkets, bakeries and other retailers which sell products with
fractional prices. In these cases, it seems that sellers and purchasers apply
rounding in order to speed up and facilitate the payment process. A few Member States
reported on rounding rules that were applied successfully to cash payments
prior to the euro changeover. One case concerned the abolition of the two
lowest denominations of the sub-unit (ending in 10 and 20), with the
denomination 50 of the sub-unit becoming the smallest denomination.[21] 1.7.3.
Rules to be applied in line with the principle
of legal tender of euro cash The Commission has
received complaints from citizens on the rounding of fractional prices[22] in Finland and the Netherlands. They argue that they cannot use 1 and
2 euro cent coins for payment of the exact amount, whereas an exact electronic
payment would be possible. This would lead to the 5 euro cent coin becoming de
facto the lowest coin denomination in circulation in parts of the euro area
(Netherlands and Finland) although all eight denominations are legal tender
throughout the entire euro area. Against this background,
it must be understood that any rounding habits in the euro area, either legally
binding or by social convention, cannot alter the legal tender
status of 1 and 2 euro cent coins as of any other euro cent coin. Only EU rules
could change this situation. Existing rounding rules must be interpreted and
applied in the light of the principle of the legal tender of euro cash, meaning
that these coins should continue to be accepted as means of payment in order to
pay the rounded sum if the customer wishes to do so. What
is more, confidence in the currency is very much reflected in how consumers
perceive the value of cash (both banknotes and coins). Therefore, there should
not be left room for any doubt on price transparency and the value of cash
compared to other means of payment. Limiting the rounding rules to payments in
cash might even affect the legal tender status of coins other than 1 and 2 cent
coins. "Losses" and "gains" when applying rounding to final
sums may equalise over time and regardless of whether payment was done cash or
by non-cash means. However, cash payments of rounded up amounts always suffer
the effect of a surcharge compared to non-cash payments of precise amounts.
This is in conflict with Commission Recommendation 2010/191/EU on the scope and
effects of legal tender of euro banknotes and coins as consumers who want to
avoid rounding losses might feel forced into non-cash payment means. 1.8. Cost factors of 1 and 2 euro cent coin issuance The cost factors are a
key variable for public actors to make an informed decision to continue the
production and circulation of the smallest euro coin denomination. As for any
other means of payment, the use of coins comes with costs. The costs of coin
production and issuance are covered by state income through tax contribution of
citizens or factored into prices for goods and services (e.g. to cover coin
handling costs of retailers or banks).[23] The costs of non-cash
payment tools (such as debit cards, prepaid cards, credit cards or other
electronic and mobile phone payment devices) are mostly visible to the user by
means of banking or service fees and rates. The costs of cash including coins,
however, are less visible given that the costs are not directly charged to the
user of cash and are therefore less 'noticeable'. The overall costs of
cash are related to various cost factors: raw materials, coin production, packaging,
transportation, storage and other distribution and re-circulation related costs
for banks and retailers. In addition, there are costs related to the fitness
and counterfeit checking of coins by banks and professional coin processors, to
the supply of change and to the accounting costs of retailers. In principle,
these cost factors apply to all coins regardless of their denomination. However,
with regard to production and processing costs they vary according to the size
and weight of the respective coins including the raw material chosen for the
production of blanks. While the cost factors can be relatively easily
identified, the challenge lies in trying to quantify the different cost
factors. 1.8.1.
Coin production and issuance costs As regards the costs of
1 and 2 euro cent coins as the two lowest denominations, the survey has revealed
that two costs factors are of particular importance: (1) the production costs
which tend to be above the face value of the coins causing a 'negative'
seigniorage[24]
and thereby a loss for the issuing Member State and (2) the over-production of
1 and 2 euro cent coins to compensate for the high loss rate. The production of
coins involves the use of raw material (i.e. metal used for the production of
blanks) as well as labour and capital (i.e. personnel, machines and
infrastructure). When considering the coin production costs, three key
components need to be investigated: (1) the costs of the raw material used for
blanks; (2) the production cost of the blanks; (3) the costs of the final production
(i.e. minting) of the coins. Different economic actors are involved in the coin
production process and have 'their share' in the different costs components:
metal producers and commodity traders (raw material), the blank producers (coin
blanks) and the minting facilities[25]
('ready-for-issuance' coin production). It has been difficult
to obtain detailed information on the various costs elements mentioned above
since the key players involved in the production process (i.e. blank producers
and mints) are sometimes reluctant to provide information on the costs
elements, as they consider it company-sensitive information, whose release could
jeopardise their position on the market. Nevertheless, the low face value of
the 1 cent and 2 euro cent coins suggests that production costs tend to
outweigh the actual face value of the coin denominations. Only 10 out of 17 euro
area Member States answered the question whether the acquisition/production
costs of the 1 euro and the 2 euro cent coins correspond to or fall below the
face value. It is likely that the absence of answers reflects a desire not to
highlight an existing unfavourable situation. The majority of respondents
replied that the acquisition costs of the 1-euro cent coins are equal or exceed
the face value. The average calculated from the 5 euro area Member States that
provided an indication of the acquisition costs amounts to approximately 160%
of the coins' face value. The difference in terms of acquisition costs across
euro area Member States is large. While in a few euro area Member States the
acquisition costs are slightly less than the face value of the coin, in other
euro area Member States it can be as high as three to four times the face
value. When it comes to the 2
euro cent coin, almost half of the euro area Member States which responded is
confronted with acquisition costs that are higher than the face value. The
other half reports that the acquisitions costs remain lower than the face
value. The average calculated from the 5 Member States that provided an
indication of the acquisition costs amounts to approximately 150% of the coins'
face value. Whereas it is
questionable whether concrete numbers on ('negative') seigniorage in the euro
area can be extrapolated from the above figures provided by euro area Member
States, there is nonetheless a strong indication that the euro area as such
suffers losses from the 'negative seigniorage' attached to these coins. Since
the introduction of the euro, 20,2 billion 1 euro cent coins and 25,6 billion 2
euro cent coins have been issued with the overall issuance of both denominations
having nearly doubled since the introduction of the euro. The face value of
these coins now amounts to EUR 714 million [26]
and there is evidence that the costs of all 1 and 2 euro cent coins issued are
higher. The exact calculation of the 'negative seigniorage' related to these
coins is difficult as the relevant and complete set of data was not made
available by the euro area Member States. However, an estimate could be made by
extrapolating the information provided by the 5 euro area Member States that
provided figures to the whole euro area. On this basis and on the assumption
that the acquisition costs are respectively 160% and 150% of the face value of
1 and 2 euro cent coins since the introduction of euro cash in 2002, today's
total acquisition costs of all 1 and 2 euro cent coins would amount to 1,09 bn
EUR with an estimated accumulated 'negative seigniorage' related to 1 and 2
euro cent coins of around EUR 376 million for the euro area. Using a weighted
average, the negative seigniorage attached to the issuance of 1 and 2 euro
cents coins could reach EUR 1.4 billion euros (the difference is due to a very
unfavourable acquisition price in a large Member State). It is understood that
the 'negative seigniorage' would be lower (but still negative) if the loss rate
of the 1 euro cent coin were at a normal level.[27] As stated
above, following information provided by euro area Member States on the loss
rate, the rate of loss of "their" 1 euro cent coins is in a majority
of euro area Member States higher than 50 % with the consequence that less than
one out of two coins is actually used for cash transactions. A similar
reasoning applies for the 2 euro cent coin, whereby the loss rate is however
slightly lower. 1.8.2.
Understanding the variation in costs Acquisition costs of 1 and
2 euro cent coins vary substantially between euro area Member States. Whereas a
few Member States are confronted with acquisition costs that are still below
face value (and issue the denominations at costs below face value), other
Member States acquisition costs are as high as three to four times the face
value. While detailed and systematic information on the various production cost
components was not available, some preliminary and broad indications can be
made on the basis of bilateral contacts with some of the relevant players (e.g.
blank producers, mints). The costs of the coin blanks are reported to amount
approximately to around 50-60% of the coins' face value with costs for the 2
cent coin at the lower end of the range. It is reported that the
largest part of the 50-60% blanks production costs is related to the costs of
the raw material. This seems plausible, taking into account that the production
of blanks takes place by private companies in a competitive market environment.
Because of the relatively small margins involved in the blank production
process, the industry has witnessed a vertical integration process whereby
recently blank producers and mints have started to combine forces to increase
their financial resilience in a business that is characterized by high volumes
and small margins. Based on these
preliminary findings, the substantial variation in coin production costs cannot
be explained by the costs of the raw material or the blank production process
but should rather be attributed to the final production process of the coins
(i.e. minting) that is undertaken by the national mints of the euro area.
However, further analysis would be needed to investigate whether the variation
in costs among national euro area mints is caused by the differences in the
labor and/or capital costs involved in the final coin production process or if
it is related to potential inefficiencies in the production process. The
existence of these substantial cost differences between national mints can
maybe be explained by the quasi-monopolistic situation by which the
minting-industry is characterized. Substantial costs differences are more
likely to persist under such market conditions. 1.9. The citizens' experience with the use of the 1 and 2 euro cent coins Since the changeover in
2002 until now, regular surveys have been conducted on the experience of
citizens with using the single currency. Those surveys also included specific
questions related to the experience and to the preferences of citizens
regarding the use of the different coin denominations. In a 2012 Flash
Eurobarometer, euro area citizens were surveyed regarding their experience with
the handling of euro cent coins including the 1 and 2 cent coins. 78% of
citizens in the euro area say it is easy to distinguish and handle euro coins,
while 21% experience difficulties. Since 2003, the proportion of respondents
considering it easy to handle euro coins has remained relatively stable (around
70%-78%).[28] Chart 11 Source: Flash
Eurobarometer 362 in 2012 The 21% of respondents
who found it difficult to recognise and handle euro coins were asked which
coins caused them particular difficulties.[29]
The result shows clearly that the 2-cent euro coin was considered to be the
most problematic – by 69% of those who said they had difficulties handling euro
coins (this represented 14% of all respondents). The second most difficult coin
to handle was the smallest denomination, the 1 cent euro coin – according to
60% of those having problems handling the euro coins (13% of all respondents).
Just over half (51%) mention the 5 cent coin, while 43% the 20 cent coin. Based
on the Eurobarometer results, it can be concluded that citizens consider
overall that the euro coins are relatively easy to handle with however less
favourable responses for the 1 and 2 euro cent coins. Chart 12 Source:
Flash Eurobarometer 362 in 2012 1.10. Usefulness of continued issuance When assessing the
usefulness of the continued issuance of the 1 and 2 euro cent coins, it is
appropriate to mention a number of known benefits of continued issuance for
stakeholders and citizens. The 1 and 2 cent euro coins allow small cash
payments to be made. Cash is anonymous, widely accepted and allows for easy
circulation without direct costs for the consumer. Cash including the small
coin denominations is the most accessible means of payment for the financially
weaker members of society as it does not necessitate a financial intermediary
at the moment the payment is made.[30]
The small coins allow charging low prices for specific retail products. In
addition, it allows charging fractional prices. Finally, keeping the 1 and 2
cent euro coins allows the continued use of these coins for social fundraising
and donations. Very often, customers in shops are invited to donate their
change at the cash desk for charity. Notwithstanding the
known benefits of the continued issuance, a majority of euro area Member States
that responded to the questionnaire did not consider the issuance of the 1 euro
cent coin useful based on a number of arguments. First, the acquisition costs
of 1 and 2 euro cent coins are too high with production costs exceeding the
face value. Second, 1 and 2 euro cent coins cause additional costs for business
and consumers including very high transportation and processing costs. Third,
the coins are not accepted by vending machines and are often hoarded by people.
However, some euro area Member States want continued issuance of the 1 and 2
euro cent coins. They argue it will help to avoid inflation by avoiding upward
rounding of prices. Moreover, it allows charging low prices for very specific
retail products. The majority of the
private actors, which were consulted, consider the issuance of 1 euro cent
coins useful. Many prices are still set at the cent level and therefore the
smallest denominations remain useful to provide change. However, consumer
associations point out that the debate is larger than simply weighing the
financial costs of 1 and 2 euro cent coins. Beyond factors such as consumer habits,
traditions and the economic situation, the discussions on the issuance of the
smallest denominations of euro cent coins are part of the larger debate, namely
the cost of cash versus electronic payment instruments. Consumer associations
point out that cash remains the most popular means of payment among consumers,
especially as regards relatively small transactions. These associations
complain that considerable resources are spent by the financial industry on
trying to convince the policymakers that cash is much more expensive than
electronic payment instruments, and that the market share of cash transactions
should therefore be reduced. It is said that the financial industry's arguments
are based on studies that usually calculate the cost of cash for banks and
retailers, while omitting the consumer and advantages offered by cash. The
associations argue that cash has an important financial and social inclusion
aspect. For "unbanked" people, it is the only accessible means of
payment and does not necessitate an intermediary at the moment the payment is
made. In addition, cash is convenient for many consumers, at least for small
payments, and it enables consumers to keep a close check on their spending.
2.
Scenario of continued
issuance at reduced costs
This scenario entails
the continued issuance of the smallest denominations while looking into
possibilities to reduce the current costs of issuance. As explained, the
production costs of 1 and 2 euro cent coins appear too high causing 'negative'
seigniorage in several euro area Member States with the issuance of those coins
having become a loss-making business from a state income point of view. There
seem to be two major options to lower the costs and make the 1 and 2 euro cent
coins cheaper to produce. 2.1. Reducing issuance costs by changing the coin composition The first option is to
change the composition of the coins and use cheaper and less precious metal,
although with changing the diameter and thickness of the coins.[31] However, the
analysis of the cost of the coin production process has revealed that the cost
of the blanks does not exceed 50-60% of the face value. Even on the assumption
that the biggest part of blank production costs relates to raw material costs,
it is not obvious why coin acquisition costs are of up to three or four time
the coins' face value. In this regard, the final coin production process (i.e.
minting) plays a crucial role. A second option would, therefore, be to focus on
the coin production process and investigate the potential inefficiencies to be
tackled. There is some
room for cost reduction by changing the composition of the coins. Further to a
technical statement by technical experts from European mints[32], there seems
to be a number of potential alternatives that are broader than only focusing on
a change in the composition. Also other actors have emphasised that the current
composition of copper-plated steel is already a rather cheap solution
particularly in view of the technical requirements which the euro cent coins
need to fulfil. However, according to the technical statement improvements on
the material costs side could be reached in three different ways: [33] ·
Optimising
the existing manufacturing tolerances of the 1 and 2 euro cent coins, without
changing the overall specification. This could lead to costs savings around 5%
of the price for coin blanks. ·
Reducing
the thickness of the copper layers, without changing the other specifications.
This could potentially reduce the coin blank costs by 5 to 10%. ·
Changing
the composition of the coins towards stainless steel. This would change the
colour of the 1 and 2 cents from red into grey but could lead to cost savings
in the range of 10-13% on the cost of the blanks. Further to
the technical statement, there are currently no viable non-metallic alternatives
known for the small metallic coins. Any move to non-metallic solution would
require a very high financial effort by the industry. Moreover, it would
require a complete change in the production process, since non-metallic coins
cannot be minted on the standard coin presses of the mints. Others
relevant actors have argued that substantial savings could be made by changing
the composition of the euro cent coins to aluminium with some percentages of
magnesium. It is reported that it could potentially reduce the costs by 45-50%
in comparison with the current copper-plated steel. A recent study undertaken
for the United States Mint also highlights aluminium and steel, but also added
zinc as leading alternative candidates to reduce the costs of coinage.[34] Any change in
the composition of the euro cent coins would require technical in-depth studies
and also extensive testing in collaboration with blank producers and other
technical partners and stakeholders. In addition, it would also require an
amendment to the EU regulation on technical coin specifications. In case a change
in composition would change the colour of the coins, there would be the need
for a public information campaign in order to inform the wider public thereof. It can be
concluded that there is room for cost savings, although views on alternative
compositions of the 1 and 2 euro cent coins and the size of the potential cost
reductions diverge. Nevertheless, the impact on the overall costs would remain
relatively limited as the cost of the raw material constitutes only a minor
part of the total costs of the finished product. Consequently, several euro
area Member States would remain confronted with negative seigniorage on these
small coins, even after a change in their composition. 2.2. Reducing issuance costs by increasing efficiency of coin production An important
second option to reduce cost would focus on the coin production process. The earlier
analysis of the cost factors of the issuance of the 1 and 2 euro cent coins has
shown that the substantial variation in coin production costs cannot be explained
by the costs of the raw material or the blank production process but should
rather be attributed to the final production process of the coins (i.e.
minting) that is undertaken by the national mints of the euro area. However,
further analysis would be needed to investigate whether the variation in costs
among national euro area mints is caused by the differences in the labor and/or
capital costs involved in the final coin production process or whether it is
related to potential inefficiencies of specific aspects of the production
process. A systematic in-depth
analysis of ways to enhance the efficiency of the coin production process has
for example taken place in the context of a recent study prepared for the US in
2012. The first part of the study involved investigating whether changes in
production technology, in the machinery and methods used to produce coins could
be expected to achieve costs savings. The second part was a detailed analysis
of circulating coin production by the US mints in Philadelphia and Denver with
the differences in production practices between the two mints investigated. The
US study concluded that there was room for some improvements with regard to
efficiency. However, it did not foresee any forthcoming means of markedly
improving the coin production process. Finally, the study interestingly noted
that the impact of using alternative metals for coinage could have significant
effects on the production efficiency (e.g. lower temperature might be needed
for coinage). It has to be
understood that the continued issuance at reduced issuance costs cannot tackle
the other costs related to the circulation of coins (such as the cash handling
costs) and the problem of hoarding. The over-production of 1 and 2 euro cent
coins to compensate loss would have to continue under the scenario of continued
issuance at reduced issuance costs. However, in case both options (i.e. change
in composition and enhanced efficiency of production process) would be fully
implemented, the negative seigniorage related to the issuance of the 1 and 2
euro cent coins could be significantly reduced, if not eliminated. III. two scenarios of withdrawal of the 1 and 2 euro cent coins
1. Scenario of withdrawal with loss of legal tender ("Quick
withdrawal scenario")
Under this
scenario, the issuance of 1 and 2 euro cent coins is stopped and the coins
would be withdrawn from circulation. Questions on the active withdrawal
scenario with loss of legal tender were addressed to all groups of key
stakeholders, both public and private. However, only a relatively small group
of key stakeholders answered them and provided observations on the withdrawal
scenario. The stakeholders replying to the questionnaire in general provided
answers that applied equally to the 1 and 2 euro cent coins. It appears that
there is generally no need to differentiate between those two denominations
when it comes to the practicalities of their potential abolition. 1.1. Economic implications 1.1.1. Inflation: real or perceived? A substantial concern
raised by stakeholders is the inflation that might occur under the withdrawal
scenario of the two smallest euro coin denominations. It is feared that the
abolition of the 1 and 2 euro cent coins could lead to price increases
including through the application of rounding rules. When it comes to inflation
in this context, it is important to distinguish between the real measured
inflation and the perceived inflation. While inflation can be measured based on
empirical data, perceived inflation is much more difficult to assess and
explain as it mostly originates from expectations and externalities. The distinction between
real and perceived inflation has also been important in the context of the euro
changeover in 2002 and provides evidence of what might occur in the context of
this analysis. In analogy with the Euro changeover, the withdrawal of the 1 and
2 cent coins involves a change in the existing denomination of coins. In both
cases, this might cause fear that there could be an impact on inflation as well
as on the perception of inflation. More than five years
after the introduction of euro banknotes and coins, polls revealed a widespread
perception that the euro has led to higher inflation. In a Eurobarometer poll
of autumn 2006, more than 90% of respondents in the euro area considered that
the euro had "added to the increase of prices" in the past 5 years.
However, further analysis of the Euro changeover showed that inflation perceptions
might deviate significantly from actual inflation. Before and after the Euro
changeover took place on 1 January 2002, there was a strong belief in the
public that prices increased substantially. This opinion was very
persistent, even though inflation measurements provided different results and
proved the opposite. Inflation perception
might be driven by a broad sense of cost of living. It might also be dependent
on psychological factors with a key role for people's expectations. At the time
of the euro changeover it was argued that consumers' inflation perceptions were
mainly formed on the basis of an "out-of-the-pocket" expenditure.
Incidental price increases in frequently purchased goods, like for example for
food, could have led to the impression of a general price increase. Although
the annual HICP inflation rate in 2002 was slightly below inflation in 2001,
people's perceptions of inflation increased significantly with the euro cash
changeover and, in a number of Member States, remained well above measured
inflation thereafter. Chart
13 1.1.1.1.
View of the European Central Bank and euro area
Member States According to the European
Central Bank, the abolition of the 1- and 2-euro cent coins and a rounding to
the nearest 5 euro cent in total cash payments would not be expected to have a
noticeable impact on inflation measures. The following considerations were taken
into account in assessing the possible impact on price stability. Consumer price
inflation in the euro area is measured by the 'Harmonised Index of Consumer
Prices' (HICP). It is compiled by Eurostat and the national statistical
institutes in accordance with harmonised statistical methods. The HICP aims to
be representative of the developments in the prices of all goods and services
available for purchase within the euro area for the purposes of directly
satisfying consumer needs. It measures the average changeover time in the
prices paid by households for a specific, regularly updated basket of consumer
goods and services, purchased by means of directly conducted monetary
transactions. In the HICP, the statistical authorities
take the quoted (non-rounded) prices into account when calculating the price
indices. Hence, as long as the abolition of coins does not lead to changes in
the quoted prices of individual goods and services, measured price inflation
should not be affected. The 'Deflator for
Private Consumption' is another measure to determine price changes in consumer
goods and services. In contrast to the HICP, it is based on actual and imputed
expenditures of households. Whereas the HICP refers to a fixed basket of
consumer goods and services, the private consumption deflator takes into
account consumers' changing consumption habits due to price changes. According
to the European Central Bank, when computing the 'Deflator
for Private Consumption', statistical authorities consider the actual amounts
paid. However, as rounding to nearest 5 cents would only apply to final cash
payments and not prices for individual items, there should be no systematic
bias on the summation and therefore on the private consumption deflator. An issue however would
arise if the abolition of 1 and 2 cent coins led to the quoted price being
rounded to the nearest 5 cents on individual items. The withdrawal of 1- and
2-euro cent coins could provide an opportunity for producers and retailers to
round up also a broader set of individual quoted prices, and could then lead to
some increase in the general price level and - at least one-off - to higher
inflation. Irrespective of the
impact of abolishing 1 and 2 euro cent coins on actual prices, could be an
impact on the inflation expectations of consumers. The rounding
of final cash sums or individual prices might lead consumers to expect upward
rounding or outright price increases also in the future. This might then
influence inflation expectations in the same manner as the euro cash changeover.
This holds in particular if the rounding affects items that are frequently
purchased and typically paid in cash. However, in retrospect, it should be
noted that the cash changeover did not appear to give rise to more fundamental
changes in price and wage expectations. A
majority of euro area Member States do not expect a withdrawal of 1 and/or 2
euro cent coins to have any significant impact on price stability for two
reasons: ·
First, a number of studies have demonstrated
that the inflationary effects would be very limited[35]. According to
a Belgian study in 2005, the estimated impact on prices in Belgium would be a
maximum of 0.11 %. In Slovakia, a study on inflationary impacts of the
withdrawal of 10 and 20 Haller coins concluded that the cessation and related
rounding rules would have only limited inflationary effects of less than 0.01%. According to the interim results of a pending cash study conducted on
behalf of the Bundesbank[36],
which has yet to be published, the inflationary effect due to the introduction
of a rounding rule appears to be very small. In the case of commercial rounding
of the sum on the cash receipt, the rounding-up and rounding-down effects
largely balance each other out. Even in a scenario where retailers round up all
final transaction amounts to the nearest 5 cent (e.g. EUR 1,79 to EUR
1.80 but also EUR 1,81 to EUR 1,85 or EUR 1,86 to 1,90 EUR), the one-off effect
of the price increase would amount to no more than around 0,1%. ·
Second, the experience in FI and the NL has
shown that the impact of inflation was minimal or non-existent. The Finnish
approach to rounding on cash payments did not apparently cause inflationary
effects. In this case, the rounding to the closest 5 euro cent is applied to
the final cash sum only (not to individual prices). Based on statistical
theory, there should be no inflationary impact if the number of goods purchased
is random. Some euro area Member
States indicated that the withdrawal of 1 and/or 2 euro cents coins could have
a very limited and transitory effect on the price level. In light of the
competitive structure of trade and distribution sectors, commodity prices could
be rounded upward more frequently than downward. This would also lead to a perception
of a higher inflation, particularly on low-priced units and/or frequently
purchased products. Furthermore there would be a limited inflationary risk if
the producers and retailers round up a broader set of prices, which could then
lead to some increase of the general price level or have a negative impact on
inflation expectations. Several Member States
suggested potential accompanying measures that could reduce inflation or the
perception of inflation. First, the introduction of an appropriate rounding
rule should normally have no impact on price stability as the upward and
downward rounding would even each other out. In contrast, the rounding of
individual prices is deemed to have a negative impact on price stability.
Second, Member States called for taking measures to fight perceived inflation by
countering possible negative perception by the public through setting up a
targeted information campaign. A clear message to the public, consumers and
retailers is important in view of informing them that there are no reasons to
fear inflationary effects. However, the cost dimension of such information
campaigns would have to be taken into account when weighing the costs and
benefits of a potential withdrawal. 1.1.1.2.
View of consumer and retailer associations Consumer
associations have mixed views regarding the impact on price stability, if 1
and/or 2 euro cent coins were withdrawn. In their view, a potential impact on
inflation cannot be excluded. This impact could be relatively high if prices of
individual items and not total amounts of payments were rounded. One consumer
association indicated that there is likely to be a significant impact on prices
of daily products, because many prices would need to be revised and certainly
many economic operators would take advantage of the situation to increase
prices. This could have a negative impact particularly on lower income and
other vulnerable consumers. Retailers are divided
with regard to the potential withdrawal of the 1 and 2 euro cent coins. The use
of these coins constitutes a cost factor for them. While they provide consumers
with the relevant small value coins, the consumers rarely use these coins to
pay. In case of a withdrawal of these coins, it is crucial for the retailers
that this should be accompanied by the appropriate changes in the EU legal
framework including the introduction of the appropriate rounding rules.
Retailer associations suggested a rounding of total cash payments to the
nearest multiple of 5 or 10. It was noted that in the Netherlands and Finland,
the impact on prices seemed to have remained very limited possibly because of
the balancing effect of rounding up and down. Rounding on individual items
should be avoided because it is likely to increase inflation. One retailer
association emphasised that it needed to clarify whether potential rounding
rules would be applied only to cash payments or also to electronic payments;
this could lead to confusion for the consumer because different amounts might
have to be paid depending on the payment method. A
representative from a large retail sector from a programme country emphasised
that they are against the withdrawal of the coins at this moment in time. In
the current economic crisis, consumers would be very suspicious with regard to
any change in the coin denomination structure suspecting that the aim of the
operation would be to increase prices. Once the economy has recovered, a
withdrawal could be envisaged to be accompanied by an important communication
campaign to inform consumers. 1.1.2. Impact on state income: tax revenues and seigniorage When it comes to
seigniorage, the withdrawal of the 1 and 2 euro cent coins is likely to have
a mixed impact on the income of the Member States in the euro area. Around half
of the euro area Member States is confronted with negative seigniorage in
relation to their issuance of 1 and 2 euro cent coins. In those Member States,
substantial savings sometime up to 4 times the face value could be made by
abolishing the 1 and 2 euro cent denominations. However, in other euro area
Member States the seigniorage of those coins is still positive and this
positive state income stream would be lost. From this specific perspective,
rather than abolishing the coins, addressing the high production costs in the
euro area Member States confronted with negative seigniorage seems a better
solution. It would reduce the losses in those countries while safeguarding the
positive seigniorage from those euro area Member States that can produce with
lower costs. In case of
withdrawal of the 1 and 2 euro cent coins, probably more coins of the denominations
following next on the denomination scale, in particular the 5 and 10 euro cent
coins, would be needed. Given the higher face value of those coins (issued at
positive seigniorage), the seigniorage from these coins would increase. This
would therefore have a positive yet probably modest impact on the state income. Since it is
envisaged that there are no inflationary effects linked to the withdrawal of
the 2 smallest denominations, there should normally also be no impact on
indirect taxation, i.e. VAT. In case of withdrawal, most likely rounding rules
would apply to the final sum with rounding up and rounding down equalling each
other out thereby have no impact on the overall price level and consequently
the VAT receipts. 1.1.3. Impact on private stakeholder business The analysis
of the economic impact of the withdrawal scenario examines the consequences for
economic operators including private companies and businesses. For the purpose
of this analysis, Mints are considered economic operators. Even though some
Mints are public companies and fulfil certain extent tasks in the public
interest, they function like private companies in the market. Against this
background, Mints, as well as various retailers, banking and cash in transport
associations were asked to provide their observations on the question of what
kind of impact the cessation of the smallest euro coin denominations would have
in their field of economic activity. None of the
banking associations took a position and submitted a reply to this question. It
is understood that provision of cash does not come for free and it cannot be excluded
that for banks the provision of certain (coin) denominations to clients is less
profitable than the provision with others. However, it appears that banks as
cash providers may not see themselves in the driving seat of the discussion on
1 and 2 euro cent coins. The role of banks in cash management and procession is
to provide euro cash users with cash as such and independently of the range of
legal denominations. The question whether the one or the other denomination
requested by the users is (dis)advantageous from the bank's business and profitability
point of view seems to be of less interest for banks as they in any case pass
the costs of provision of cash on to their customers. The cash transportation
business highlighted the positive effect of the withdrawal of both
denominations. Given their shape and high quantity, the 1 and 2 euro cents are
difficult to process technically. What is more, margins for processing these
two denominations are low compared to the higher value coins, given that in
some countries income deriving from coin processing is proportional to the
deposit value rather than to the number of coins or the weight of the coins.
Other positive impacts of a withdrawal include less weight to be handled by the
coin processing infrastructure (machines, vehicles) and staff as in total less
coins would need to be handled and reduced costs related to the maintenance of
coin sorting and packaging machines as less machines would be needed. While processing small
denominations is a necessary business -as 1 and 2 euro cent coins are legal
tender and actually used - it generates low profits. Resources in the cash
processing business could probably be used more effectively in other cash
processing activities which generate higher profits due to higher margins. On
the other hand, the cash transport association points out that with a lower
volume of delivery, processing and transportation there would certainly be a
loss in turnover and margins which could trigger employee layoffs and financial
risks due to severance pay for employee terminations. Furthermore, additional
costs could arise from the excess of packaging material for 1 and 2 euro cent
coins and the necessary resetting of production lines. While not
being able to quantify the exact amount, the retailers signalled that the
withdrawal of the relevant coins would clearly lead to cost savings. It was reported
by a large retailer that the costs of obtaining a set of fifty 1 cent coins
costs the 50 cents plus an extra 40 cents. In addition to those cost savings,
the handling and transportation costs related to the 1 and 2 euro cent coins
would also be reduced even if they could not provide quantitative data in this
regard. Retailers indicated that the withdrawal scenario could risk provoking a
negative attitude from consumers in relation to the fear for inflation. However,
retailers were positive that this problem could most likely be addressed by
focused public relations campaigns informing citizens that the withdrawal of
the coins and rounding would not impact on inflation. As regards the Mints,
the question of the impact of the ceasing coin issuance was submitted with a
focus on their field of activity with regard to the variables time and costs
(e.g. termination of long-term contracts on supply of blanks) under the
withdrawal scenario. Generally speaking, the Mints stated that the cessation of
issuance of 1 and 2 euro cent coins would negatively impact on their business.
The 1 and 2 euro cents already minted would have to be destroyed, causing
additional costs including the costs of melting the coins. All Mints except
one, however, seem to face no problems with running contracts on the supply of
blanks. The contracts generally do not run for more than 12 to 18 months, which
– as a conclusion for this study – does not appear to be a problem as the
preparation of the possible withdrawal scenario would take more or less the
same time. A number of
mints emphasised that 1 and 2 euro cent coins represent more than 50% of their
production of coins. Over capacity in terms of production under the possible
withdrawal scenario would imply the closing of production units, with a
negative financial impact on those Mints and causing workers to lose their
jobs. However, it could be considered whether the freed capacities could not be
used to concentrate on more lucrative business. For other Mints, ceasing the
issuance of 1 and 2 euro cent coins would have a relatively small impact on
their field of business. The impact would be temporary and occur mainly during
the transition period. 1.2. Social impact Observations
made by stakeholders also touched indirectly upon the general social impact of
a withdrawal scenario. As an example, stakeholders pointed out that fair and
easy rounding rules would have to be introduced and applied only to the final
sum of the payment. It also appears that in order to be accepted widely, the
withdrawal scenario would have to be prepared well in advance and be
accompanied by an appropriate information campaign. Moreover, it should rather
be carried out at a convenient moment of economic and financial upswing, since
citizens are currently very sensitive to plans and initiatives which could be
perceived as affecting their financial situation because of the difficult
general economic environment. From a social
point of view, the withdrawal scenario could negatively impact on social fund
raising and donations. As stated above, in some countries supermarkets have
been inviting customers to sporadically donate "red coin" change at
the cash desk for charity. Although customers may want to donate more than
"red coin change", the withdrawal scenario would eliminate charity
donations of 1 and 2 euro cent coins. It would be difficult to quantify this
impact on the overall amount of donations, but given the low face value of the
1 and 2 euro cent coins "lost chances" for donations are likely to be
marginal. What is more, the costs of handling and processing low value coin
donations (relatively low sums, relatively high amount of coins, probably long
collection intervals) would have to be factored into the calculation of the
costs/benefits of this kind of social fund raising and charity.[37] Charity
associations could probably assist (central) banks and other cash processing bodies
with the withdrawal of the 1 and 2 euro cent coins (e.g. through "kettle
actions" in shopping malls and streets). The reimbursement of the
collected coins could be injected into charity projects rather than be returned
to the state while causing a one-off beneficial effect of the withdrawal. From
a state income and costs of withdrawal point of view, collecting of coins
through charity while renouncing to collected receipts may probably be more
cost efficient for Member States than involving (exclusively) costly
professional cash procession bodies and business in the withdrawal and keeping
the receipts. The social
impact of the withdrawal scenario on tipping in restaurants and bars is likely
to be irrelevant, given that in general prices for beverages and prepared meals
in locations with service are not fractional. What is more, customers really
willing to tip are unlikely to give 1 or 2 euro cent as overall tip or to round
up the total sum to the next 5 or 0 cent only. 1.3.
Impact on other coin denominations and the use
of other means of payment Under the
withdrawal scenario, the number of euro coin denominations would drop from 8 to
6 denominations. In their answers to the questionnaire on whether to abolish
the 1 and/or 2 euro cent coin, the stakeholders mostly did not take a different
view on the potential withdrawal of the 1 euro cent coin than that they
expressed on the potential withdrawal of the 2 euro cent coin. Therefore, the
more likely potential withdrawal scenario would be the abolition of the two
lowest denominations. Against this background, the 5 euro cent coin would
become the lowest denomination. The Member
States and the central banks were questioned about a potential impact of the 1
and 2 euro cent abolition on the other coins denominations such as the 5 euro
cent coin. The overall view is that the demand for 5 euro cent coins but also
for 10 euro cent coins would increase and that the demand for 5 euro cent coins
would increase more than the demand for 10 euro cent coins. Member States and
central banks find it difficult to quantify the scale of such an increase, as
the demand for the coins would depend on rounding policies and price pointing.
Central banks and Member States report that the increase is expected to be
small, in particular because rounding would apply to the overall due sum rather
than to each item to be purchased and because rounding would have the effect to
even out the demand for 5 and 10 euro cent coins. 1.4. Implementing measures accompanying a possible withdrawal scenario 1.4.1.
Legislative act by the European legislator As a prerequisite of a
possible withdrawal scenario, relevant secondary EU law would have to be
amended. The determination of the denomination of euro coins is the exclusive
competence of the European Union pursuant to Article 128, paragraph 2 of the
TFEU. The withdrawal scenario would imply the abolition of the 1 and 2 euro
cent denominations. Therefore, Council Regulation (EC) No 975/98 which laid
down the details of the euro coin denominations and set the number of
denominations at eight would have to be amended. Under the withdrawal
scenario, it is expected that fractional prices would continue to exist. Exact
cash payment of the final sum of fractional prices would not always be possible
anymore. Therefore, legally binding rounding rules for the euro area would need
to be introduced, most likely based on Article 133 TFEU following the ordinary
legislative procedure and after consultation of the ECB. On grounds of the
principles of equal treatment, non-discrimination and fair competition,
rounding would have to apply to all means of payment it being cash or non-cash
payments. 1.4.2. Implementing measures to be taken by public key stakeholders The possible
withdrawal scenario would affect every cash user and thereby all citizens and
key stakeholders in the euro area. As an example, with the 1 and 2 euro cent
coins ceasing to be legal tender in the euro area, citizens would try to spend
their (hoarded) 1 and 2 euro cents as much as possible in retailer transactions
(e.g. in supermarkets) or return them to the banks before the expiry date is
reached. Regardless of the impact of the withdrawal on everyone's lives, key
stakeholders with public and private tasks would have to play a pro-active role
and need to take implementing measures that accompany the withdrawal of the
coins. Against this
background, three guiding principles appeared to be important for a successful
withdrawal: ·
Timely
preparation of implementing measures and information of the public ·
Central
banks and banks to play a pivotal role in the practical withdrawal ·
Appropriate
duration of the implementing measures Any
withdrawal of 1 and 2 euro cent coins including cessation of further issuance
would have to be organised in the view of ensuring a proper and adequate
implementation. The central banks supported, where necessary, by the public
administration would have to organise the physical withdrawal of the 1 and 2
euro cent coins. In addition, Member States would have to decide which
accompanying measures to take to prepare the withdrawal from a socio-economical
(public campaign to inform citizens, administration and business) logistical
and legal point of view. On the side
of public key stakeholders, treasuries, central banks and the ECB would play a
pivotal role in preparing the withdrawal, including considering a wide range of
activities with regard to timing and appropriate information of the public. The key
stakeholders stated that in addition to the preparation of the mere physical
withdrawal of the 1 and 2 euro cent coins preparatory measures would be
necessary. Such measures should consist of appropriate publicity campaigns
which inform the public on the withdrawal and its ramifications and
practicalities as such. The stakeholders underlined that the public should be
informed with the aim of reassuring consumers and retailers that there would
not be any reason to fear inflationary effects. Some Member States referred to
their experience with regard to the abolition of small national denominations
and advised to discuss the possible abolition of the 1 and 2 euro cent with consumers,
retailers and banks prior in preparation of the withdrawal campaign. As to the
duration of the accompanying measures, several Member States pointed out that
the public information campaign should run at least for 6 months although the
overall withdrawal procedure including the application of accompanying measures
would need one or even up to two years. Member States
were confronted with the key question on the practical preparation of a
possible withdrawal scenario and the role their national central banks would
play in the implementation Although none of the addressees of the questions
provided comprehensive information on how the withdrawal would have to be
organised in the respective Member State, key public stakeholders tend to agree
that the withdrawal should be carried out as it was done when the national cash
was withdrawn in its territory at the moment of the euro changeover. Several
key stakeholders pleaded for a progressive withdrawal with instructions to the
central bank and commercial banks to stop further issuance to customers and
return all stocks progressively. Finally, some stakeholders advocated for
leaving the withdrawal measures to Member State discretion while proposing that
the Commission should lay down the withdrawal framework such as the redemption
time for 1 and 2 euro cent coins and leave the specific details to the
individual Member States. As to the
practicalities of the withdrawal, some of the central banks implied the need to
adapt the central bank's internal proceedings and IT systems as well as the
website and public information about the coins. Finally, central banks are of
the opinion that the higher return of the coins to the central banks upon
withdrawal would imply a higher demand for storage and logistics in central
bank facilities until the melting down of the coins. None of the
central banks quantified the implementation measures of the physical coin
withdrawal in terms of money and personnel. The reason could be that in recent
years central banks have been outsourcing cash distribution where possible and
reducing cash handling services to the minimum. Consequently, a large
proportion of the physical cash withdrawal would be borne by the cash handling
service providers to which cash distribution has been outsourced rather than by
the central banks' own staff and resources. As to the
question on how long it would take to perform the implementing measures,
central banks agreed that sufficient time must be given to all stakeholders to
prepare themselves and inform the citizens. On average, central banks stated
that the implementing measures in general should last at least one year but
some central banks considered a two-year period more adequate. In order to
carry out the public information campaign and provide for the rounding rules,
central banks think that one year may be sufficient. In general, central banks
pointed out that the physical withdrawal would take several years as the 1 and
2 euro cent coins would not lose their qualification as legal tender, at least
not before an appropriate legal transition period of several years has elapsed. However, it
appears to be difficult to estimate the amount of coins to be returned and to
calculate and set an appropriate timeframe up-front. None of the central banks
were in a position to provide observations on how many 1 and 2 euro cent coins
are expected to be returned. Some stakeholders expect very limited amounts of
these denominations to return. As discussed
earlier, the 1 and 2 euro cent coins have been issued in high quantities.
Moreover, these coins have been hoarded in high quantities in private
households. Nevertheless retailers and above all supermarkets would be owners
of the largest quantities of these denominations as they have to provide change
at the cashier. The loss rate of both denominations is very high and their face
value low. Therefore, one may probably expect a relatively low return rate. It
is envisioned that a citizen with a small amount of 1 and 2 euro cent coins in
his wallet is unlikely to change the small amount or pay it into a bank account
at a bank counter but use them for payments in the supermarket. 1.4.3. Implementing measures to be taken by private key stakeholders Similar to
public key stakeholders, also private key stakeholders such as banks, retailers
and cash-in transport industry would have to play a specific role should the 1
and 2 euro cent coins be withdrawn. Therefore, stakeholders were confronted
with questions on which implementation measure they would consider necessary in
their field of business. However, only a few private
stakeholders who were contacted submitted replies on these issues. The banking
industry highlighted the sensitivity of a withdrawal scenario and called for a
thorough ex-ante discussion with stakeholders about any implementing measures
and the various possible options to put a withdrawal scenario into practice.
The timeline for phasing out the use of 1 and 2 euro cent coins should be
considered and an information campaign should be developed. Banks pointed out
that, in principle, they would have to provide their customers with all cash
denominations. The banks' costs to provide euro coins would not change significantly
if one or two denominations such as the 1 and 2 euro cent coins were dropped or
new coin denominations added. Banks could face specific implementation
measures, for example in the case that the rounding rules for cash payments
would apply to electronic payments. In the latter case, the banks' IT-systems
for accounting and for running the coin processing machines would have to be
adapted. Costs related to those changes would however remain rather limited. The cash in
transport business expects a limited impact when involved in the possible
withdrawal scenario and reported that the withdrawal would imply software and
hardware modifications to the coin processing machines and some changes in the
client reporting system. The association believes that the adaptations would
require up to six months, but some partners may be in a position to carry out
the modifications in only a couple of weeks. 1.5. Experience with withdrawal of low value coins Historical
experience with the abolition of small denominations in various countries shows
that, namely for reasons of legal certainty, the abolition of a coin
denomination is usually accompanied by the withdrawal of the respective coins.
In these circumstances, individuals and professional coin users can either exchange
the denominations at the bank counter or return them directly or via an agent
to the central bank. In most cases, and as an incentive for fast and effective
withdrawal, the abandoned denomination loses it quality as legal tender at the
end of a legally defined transition period. In the past,
various European countries including Member States which now belong to the euro
area, abolished and withdrew lower denomination coins. No denominations have
been withdrawn in the euro area so far. The measures taken in Finland and the
Netherlands to physically limit the circulation of 1 and 2 euro cent coins
combined with the use of rounding rules cannot be considered as withdrawal.
These denominations continue to be legal tender in the whole euro area
including Finland and the Netherlands. The
experience with the withdrawal of small denomination coins is not limited to
European countries. Other (Western) countries, including recently Canada, have
decided to abolish low value coins. 1.5.1. Euro area
Member States prior to the euro changeover Some EU
Member States which became members of the euro area gained experience from the
withdrawal of low denomination coins before the euro changeover took place.
Belgium, Finland, Greece, the Netherlands and Slovakia withdrew several low
denomination coins from circulation. Over the years, amongst others the
following denominations were withdrawn (EUR according to conversion rates): BEF
0.25 (EUR 0.006), FIM 0.01 and 0.05 (EUR 0.002 and 0.008), GRD 0.05, 0.10 and
0.20 (EUR 0.00015, 0.0003 and 0.0006), NLG 0.01 (EUR 0.005), SKK 0.10 and 0.20
(EUR 0.003 and 0.006). Luxembourg,
the Netherlands, Portugal and Spain changed the metallic composition of their
national coin denominations to reduce costs but it is not reported that theses
specific denominations have been abolished later on. 1.5.2. Other EU
Member States and European countries Many low
denomination coins have been withdrawn from circulation in countries outside
the euro area, in countries of the European Economic Area or in other European
countries. A long
tradition of withdrawal can be noted in Scandinavia. Denmark, Norway and Sweden
introduced common coin denominations and units of account (krone) in 19th
century, when the Scandinavian Monetary Union was built. Whereas in
Sweden and Norway the lowest denomination is 1 krona today, the lowest
denomination of 50 øre coins remains being legal tender in Denmark. However in
Norway and Sweden, the øre is only an arithmetical unit, which can be used
for quoted prices and electronic payments. Furthermore Iceland has withdrawn
low denomination coins over the years. In Denmark,
on separate occasions 1, 2, 5 and 10 øre coins were removed. With the abolition
of the 25 øre coin in 2008, rounding to the nearest 50 øre was introduced to
cash payments. In Sweden 1,
2, 5, 25, 10 and 50 øre coins were withdrawn between 1972 and 2010.[38] The Swedish
Riksbank recommended the cessation of 50 øre issuance in 2010, because its
surveys revealed that two-third of the population considered the 50 øre coins
no longer necessary. It was assessed that abolishing the 50 øre coin would not
have any significant effect on the demand for other denominations of coins, but
would lead to a relatively small increase in demand for 1 krona coins. The
costs of withdrawal for the Swedish Riksbank were calculated at SEK 10-15
million. At the same time new rounding rules were introduced. Cash payments
must be rounded to the nearest krona/or, meaning that amounts from SEK 0.01 to
0.49 are rounded down and amounts from SEK 0.50 to 0.99 are rounded up. In Sweden
retailers sent recently a request to the Swedish Ministry of Finance, asking
for clarification on the issue of equal rounding rules for electronic payments,
because some retailers apply rounding rules for all kind of payments, which
might have an impact on competition. Over the
years, the Scandinavian countries also changed the metallic composition and the
size of coins using iron, bronze, nickel-bronze, cupro-nickel, copper, zinc or
tin
in order to reduce costs. With a view to inflation, these attempts were
considered insufficient to solve the problems of low denominated coins over
time. Therefore countries started to withdraw coins with the lowest
denominations. Rounding rules for cash payments were introduced, which apply
only to total amounts of payments and not to the price of each individual article. In 1984, the United
Kingdom removed the legal tender status of GBP 0.005. . In Switzerland, the
second lowest denomination, CHF 0.02 was withdrawn from circulation in 1978. It
was followed by the cessation of the lowest denomination, CHF 0.01, in 2007. Poland is currently
considering withdrawing the two lowest denomination coins (1 and 2 grosz) to
save money as the production costs seem to be much higher than the face value
of these coins. 1.5.3. Withdrawal
experience outside Europe Several countries have
ceased to produce or have removed from circulation their lowest-denomination
coins as they became less used for transactions and more costly to produce. ·
Canada A
recent example is the withdrawal of 1 cent coins (EUR 0.007) in Canada which
took effect in February 2013. In 2010 and 2011, the Government paid the Mint
CAD 120 million (EUR 92 million) for coins and earned CAD 131 million (EUR 101
million) on the subsequent sale of these coins to financial institutions at
face value. However, the cost to produce a Canadian 1 cent coin ('penny')
exceeds its face value by about 0.6 Canadian cent. The Canadian Government
calculated that the cost of supplying Canadian cents to the economy is about
CAD 11 million (EUR 8 million) per year. A study carried out in
Canada estimated that the economic costs of maintaining 1 cent coins, including
direct production costs and indirect costs to financial institutions, retailers
and consumers, amounted to CAD 150 million (EUR 116 million) in 2006. Financial institutions
together handled more than nine billion pennies per year, which translated into
an annual cost of at least CAD 20 million (EUR 15 million).[39] Against this background,
the
Government of Canada announced in its 2012 Economic Action Plan its intention
to withdraw the Canadian 1 cent coin from circulation due to its low purchasing
power, its
rising cost of production relative to face value, the increased accumulation of
1 cent coins by Canadians in their households, environmental considerations,
and the significant handling costs the penny imposes on retailers, financial
institutions, and the economy more generally. Due to inflation, the
purchasing power of the 1 cent coin has eroded over the years, retaining only
about one-twentieth of its original purchasing power. The Royal Canadian Mint
ceased minting of Canadian 1 cent coins on 4 May 2012. A transition date of 4
February 2013 has been set after which the penny will no longer be issued.
However these coins will continue to be Canada's smallest unit for the pricing
of goods and services. Rounding is introduced for cash payments but payments by
other means, such as cheques, credit cards and debit cards, will remain to be
made to the exact amount. Withdrawing Canadian 1
cent coins from circulation is expected to save the Canadian tax payers around
7,5 million EUR production costs a year. The withdrawal is likely to increase
slightly the demand for higher-denomination coins, such as CAD 0.05, 0.10 and 0.25.
This would increase net coinage revenues as these coins are worth more than
they cost to produce. Withdrawing the penny shall bring economic and financial
savings to financial institutions, retailers and consumers. In addition it is
expected to bring some environmental benefits. Over the past five
years, around 7,000 tons of pennies were produced and distributed annually from
the Mint's plant in Winnipeg to the rest of the country. The withdrawal will
reduce the annual use of base metals by the Mint in the production process.
Metals from existing pennies will be recycled for use in other products.
Ceasing the production of pennies will save energy that is currently used in
the production, transportation and distribution of pennies. ·
USA In the United States, a
long debate has started on the future or possible cessation of issuance of 1
cent coins. According to recent statements, however, there seems to be a preference
to use an alternative material[40]
to produce the coins rather than to opt for the withdrawal as currently taking
place in Canada. ·
Other
countries Many other countries
outside the EU and North America have withdrawn low denomination coins. For example
(EUR
according to recent conversion rates): Chart 14 ·
Australia:
withdrew AUD 0.01 and 0.02 (EUR 0.008 and 0.016) from circulation in 1992. ·
Brazil:
stopped issuing BRL 1.00 (EUR 0.37) coins in 2005. ·
Israel:
stopped issuing ILS 0.01 and 0.05 (EUR 0.002 and 0.004) by 2008. ·
New
Zealand: withdrew NZD 0.01, 0.02 and 0.05 (EUR 0.006, 0.01 and 0.03) from circulation
by 2006. 1.6.
Continued issuance or cessation Confronted
with the question whether issuance of 1 and 2 euro cents should be continued or
ceased, three EU Member States stated that they are in favour of continuation
whereas four EU Member States stated that they prefer cessation. Fifteen EU
Member States did not provide any answer to this question, it being understood
that some EU Member States did not provide any answer to any of the (other)
question raised in the questionnaire. While this provides a first indication,
no definite conclusions can be made on the basis of this partial result. Also European
consumer associations were invited to take a position on continued issuance or
cessation. One of the two consumer associations that replied to the question
was in favour of the continued issuance of the small coins. The other one chose
the option to not provide an answer. The only retailer association that replied
also chose not to answer the question. These results leave us with an unclear
reply to this crucial question. In order to explore the
citizens' opinion on continued issuance or cessation, the Commission's
Eurobarometer could be used as an indicator, given that it gives useful
information on the EU citizens' views on the current euro coin denominations.
It also provides information on which euro coin denominations citizens would
most like to be removed. As in previous years, a majority of survey
participants in the euro area countries were satisfied with the current
selection of euro coins – 66% believed that there was just the right number of
euro coins. In contrast, 26% of the respondents thought that there were too
many euro coins with different values, and 1 in 20 (5%) interviewees considered
that there were not enough (see graph 6). Chart15 Source: Flash
Eurobarometer 362 in 2012 26% of the citizens
that participated in the Eurobarometer survey stated that there were too many
euro coin denominations. This group of respondents were asked which denominations
they consider superfluous. Almost 9 in 10 (88%) of them would like to see the 1
euro cent coin removed from circulation (23% of all respondents). A similar
share (82%), of those interviewees in the euro area countries who felt that
there were too many euro coin denominations, would like the 2 euro cent coin
removed (representing 21% of all survey respondents). These are the most
mentioned coins by a considerable margin. It can be concluded
that there seems to be satisfaction with the different coin denominations, with
however less support for 1 and 2 euro cent coins. Chart 16 Source:
Flash Eurobarometer 362 in 2012
2.
Scenario of withdrawal through fading out while
keeping legal tender ("Fading out scenario")
A variant of
the quick withdrawal scenario is a "fading out scenario" which would
have the effect of withdrawal but achieve it through cessation of issuance of
the 1 and 2 euro coins combined with the application of rounding rules. Without
further intervention, these denominations would disappear as a consequence of
the high loss rate and the fact that no new coins are issued and injected into
the cash cycle.[41] The rationale
of the fading out scenario is the same as for the quick withdrawal scenario.
Both scenarios are based on the assumption that the 1 and 2 euro cent coins are
impractical and too cumbersome and expensive for payment transactions. The
attractiveness of the fading out scenario compared to the quick withdrawal
scenario derives from the fact that one big organisational step in abolishing
the 1 and 2 euro coins (i.e. the cost generating physical withdrawal exercise)
does not have to be carried out.[42] 2.1.
Need for euro area rounding rules and practical
consequences for the cash user As with the
quick withdrawal scenario, legally binding rounding rules would also be needed
under the fading out scenario. One reason for the introduction of rounding
rules is that, from a legal point of view rules on rounding fractional sums
need to be put into place to provide legal certainty in cash payments of
fractional final sums in the euro area. The second reason for rounding rules
under the fading out scenario is to make this scenario efficient. 1 and 2 euro
cent coins still circulate until they are fully absorbed and disappear from
circulation. In principle, the parties of a euro cash transaction still possess
these denominations and can use them for payment, although these coins would
become rarer. In order not to jeopardise the scope of the fading out scenario
and slow down the effect of gradual disappearance of the coins, it should be
avoided that cash transaction parties still use the 1 and 2 euro cent coins to
settle the exact amount. A binding rounding rule would force the parties
legally to settle the rounded amount, it being understood that 1 and 2 euro
cent coins could still be used, but only for rounded settlement. 2.2. Duration of the fading out scenario and role of the loss rate The fading out scenario is based on the
assumption that upon cessation of issuance, the 1 and 2 euro cent coins
disappear automatically and gradually from circulation without any further
intervention. Against this background, it is important to learn by when
disappeance from circulation or at least substantial absorption of these
denominations could be expected. The loss rate of these coins, as reported by
euro area Member States, could be informative for these calculations.[43] As stated above, euro area Member
States, answering to the question on the loss rate of 1 and 2 euro cent coins,
reported that the rates differ between 25% and close to 100%. Not all euro-area
Member States have answered the question on the loss rate. It is understood
that the amounts of coins in circulation in Member States naturally diverge
considerably as also the average amount of 1 and 2 cent coins in cash
transactions of euro cash users is likely to vary substantially across the euro
area.[44] Therefore, the absorption of the coins
in one Member State would take longer than in another. Against this background,
one can only roughly estimate on the basis of the loss rate by when the amount
of coins still in circulation has reached a level that can be considered as a
negligable quantity of cash payment means. The calculation below simulates the
effects of a fading out scenario based on the average loss rate (around 60%) of
the 1 and 2 euro cent coins as reported by euro area Member States. It is based
on the assumption that the loss rate would be the same in all euro area Member
States and that it remains stable over time during the fading out scenario. The
table shows that based on the current loss rate, very large amounts of 1 and 2
euro cent coins would already have disappeared from circulation within 3 or 4
years after the cessation of issuance. Chart 17 Simulation on
the loss of 1 and 2 euro cent coins (number of coins, millions) || 1 cent coins || || 2 cent coins || Annual loss rate || || Annual loss rate || 60% || 40% || 20% || || 60% || 40% || 20% 2013 (Jan) || 26,260 || 26,260 || 26,260 || || 20,606 || 20,606 || 20,606 2014 || 10,504 || 15,756 || 21,008 || || 8,242 || 12,364 || 16,485 2015 || 4,202 || 9,453 || 16,806 || || 3,297 || 7,418 || 13,188 2016 || 1,681 || 5,672 || 13,445 || || 1,319 || 4,451 || 10,550 2017 || 672 || 3,403 || 10,756 || || 528 || 2,671 || 8,440 2018 || 269 || 2,042 || 8,605 || || 211 || 1,602 || 6,752 2019 || 108 || 1,225 || 6,884 || || 84 || 961 || 5,402 2020 || 43 || 735 || 5,507 || || 34 || 577 || 4,321 2021 || 17 || 441 || 4,406 || || 14 || 346 || 3,457 2022 || 7 || 265 || 3,525 || || 5 || 208 || 2,766 2023 || 3 || 159 || 2,820 || || 2 || 125 || 2,213 2024 || 1 || 95 || 2,256 || || 1 || 75 || 1,770 2025 || 0 || 57 || 1,805 || || 0 || 45 || 1,416 Source: ECB
and Commission calculations The exact
speed and development cannot be calculated nor predicted, given that there is
no empirical data on fading out scenarios from Member States or other
countries. A decision could be taken to end the legal tender of these coins
when their circulation becomes purely residual (e.g. end of 2020, based on a
60% loss rate scenario). 2.3. Specific cost aspects of the fading out scenario It has to
be analysed whether, compared to the quick withdrawal scenario, the fading out
scenario would allow to save costs in addition to those that would be generated
by the effective withdrawal of the coins. This would make the fading out
scenario more advantageous from a financial point of view. No lessons can be learned from Member States or other countries, given that no fading out of low denominations has been
reported. It appears that only in Sweden, a country where low denominations
coins have been withdrawn over decades, the issuance of one denomination
(2-krona coin) was ceased while the coin remained legal tender. The 2-krona coin, the face value of which is around
EUR 0,23, was issued from the 1870s until 1971 while its metallic composition
was changed several times. Nowadays, the coin is mostly absorbed by the
collector market rather than used as payment means. The fading
out would have to be accompanied by an appropriate euro area-wide information
campaign that informs about the practicalities of the fading out and the
rounding rules. It would be a particular challenge in such a campaign to
explain that rounding rules would apply even if the exact change for paying the
unrounded final would be available. The considerable costs of such an information
campaign have to be factored into the overall costs of the fading out scenario.
Similar public campaign costs would however also be generated under the quick
withdrawal scenario. Nonetheless,
it is evident that even though the circulation of these small coins would
diminish under the fading out scenario, banks, supermarkets and other retailers
would have to bear the costs for handling these coins because they remain legal
tender. This would not be the case under the quick withdrawal scenario, even
though these businesses would face an increased inflow of 1 and 2 euro cent
coins during the withdrawal period and bear the related additional one-way
handling costs. Finally the
impact of the two scenarios on state receipts is the same. While under the
fading out scenario, there might be a slight increase in the demand for 5 and
probably also 10 euro cent coins, this would be the same under the quick
withdrawal scenario. Under both scenarios, this is expected to have positive
impact on seigniorage. IV. Characteristics
and overview of the four scenarios The
characteristics, advantages and disadvantages of all four scenarios that were
discussed in the previous sections are summarised in the chart below. In
principle, the variants share the main (dis)advantages of the respective main
scenario. Chart 18 SCENARIO || MEASURES NEEDED || ADVANTAGES || DISADVANTAGES Continued issuance ('status quo scenario') || || || || None || No disruption of current cash payment habits || Continued loss ('negative' seigniorage) in Member States where coin acquisition costs are above face value || || || Continued 'over production' due to high loss rate || || || Handling, storage and transportation costs || || || Fragmented approach in euro area due to situation in Finland and the Netherlands Continued issuance at lower issuance costs ('issuance at reduced costs scenario') || || || Option 1: Issuance of new coins of less precious metal replacing progressively the current coins || || || || Amendment to EU Regulation on technical coin specifications || No need for public information campaign except if colour of new coins change due to new metallic composition || Alternative raw material may result in a different colour of new coins (white rather than red) || Technical in-depth study and testing on the use of alternative raw material || Possibility to reduce impact of coinage on environment due to better material || Challenge to ensure the requested quality characteristics of the coins (e.g. weight, diameter, thickness, size) || || Lower issuance costs for Member States || Continued loss ('negative' seigniorage) in Member States where coin acquisition costs remain above face value after saving on the costs of the raw material || || || Handling, storage and transportation costs for cash users unchanged || || || Costs related to withdrawal of old coins Option 2: Reducing costs through enhancing the efficiency of the coin production process (minting) || || || || In-depth analysis of the coin production process (blank production and minting) with focus on how production costs can be lowered (e.g.. Member States to put minting out for public tender, other efficiency gains) || No need for public information campaign || Handling, storage and transportation costs for cash users unchanged || || Lower issuance costs for Member States || Continued loss ('negative' seigniorage) in Member States where coin acquisition costs remain above face value after attempts to save on the coin production costs || || || Increasing efficiency of coin production might lead to lower staff levels or different levels of capital investment Withdrawal ('quick withdrawal scenario') || || || || Amendment to EU Regulation on euro denominations || Loss ('negative' seigniorage) in Member States where coin acquisition costs are above face value put to an end || Large and costly information campaign to explain euro cash users the consequences of the withdrawal scenario including that there is no real impact on inflation (perceived inflation) || Rules on end of legal tender and transition periods for change at (Central) Banks || One-off income of charity organizations if involved in practical withdrawal (collection jars, kettles) || No possibility to pay exactly to the arithmetical final amount || Withdrawal of coins mainly through banks and cash handlers || Overall less handling, storage and transportation costs for cash users || Costs related to withdrawal of coins || Transition period for withdrawal || Cash users put hoarded coins into the economy || Impact on blank producers and on the mint business (e.g. negative effect on staff levels) || Public information campaign || || Fading out with coins remaining legal tender ('fading out scenario') || || || || Legally binding EU rounding rules || Loss ('negative' seigniorage) in Member States where coin acquisition costs are above face value put to an end || Large and costly information campaign to explain the impact of this scenario on euro cash users including that withdrawal has no real impact on inflation (perceived inflation) || Public information campaign || Handling, storage and transportation costs for cash users expected to decrease over time || No longer seigniorage income in the few Member States where coin acquisition costs are below face value || || From timing perspective not a 'big-bang' solution but allowing euro cash users sufficient time to get used to payments without 1 and 2 euro cent coins || Mostly retailers, supermarkets and banks to bear costs of coin processing as long as coins remain legal tender || || || Difficulty to explain euro cash users that they have to pay to the rounded amount although cash at hand would allow for exact payment of the arithmetical (= unrounded) final sum || || || Impact on blank production and mint business (e.g. negative effect on staff levels) V.
General conclusions This chapter
draws general conclusions from the analysis of the fact-finding and
stock-taking exercise on the continued issuance of 1- and 2-euro cent coins and
makes suggestions on how to move the discussion on the future of the 1- and
2-euro cent coins forward. FOUR POSSIBLE
SCENARIOS ·
Four
possible scenarios are presented to tackle the challenges
of the 1 and 2 euro cent coins, each of them providing
solutions that apply to both denominations equally. The
assessment of the facts and figures as well as the related input from private
and public euro cash stakeholders led to the identification of two main
scenarios (continued issuance of coins and withdrawal of coins) with one
sub-scenario each. This makes up four possible scenarios for the 1 and 2 euro
cent coins in total. The scenarios are as follows: Continued
issuance (1) Continued
issuance of the 1 and 2 euro cent coins under today's issuance conditions
without changing the legal and/or material context ("status quo
scenario"); (2) Continued
issuance at reduced costs through changing the material composition of the
coins or by increasing the efficiency of the coin production or both
("issuance at reduced costs scenario"); Withdrawal
of coins (3)
Withdrawal of the 1 and 2 euro cent coins entailing that these coins cease to
be legal tender, legally binding rounding rules are introduced and that the
coins are actively withdrawn from circulation ("quick withdrawal
scenario"); (4) Fading
out whereby the issuance of the 1 and 2 euro cent coins would cease but the
coins keep their legal tender status while legally binding rounding rules
apply. The coins would be expected to disappear gradually from circulation due
to the high loss rate and the lack of attractiveness of these coins as
convenient payment means and because of the lack of new coins being issued and
injected into the market ("fading out scenario"). Each of the
four scenarios would apply to the 1 and 2 euro cent coins even-handedly. The
analysis did not bring up any indication that one of the scenarios should or
could apply to one of the two denominations only. STATUS QUO
SCENARIO ·
Costs
of production and issuance of 1 and 2 cent coins are generally high The costs of
production and issuance of 1 and 2 euro cent coins are high with most Member
States facing even 'negative seigniorage' as the acquisition costs of 1 and 2
euro cent coins exceeds the face value. There are important differences in the
production costs between euro area Member States with some Member States having
production costs below face value while others have costs as high as three to
four times the face value. This important cost gap cannot be explained by the
costs of the raw material or the blank production process only, but is rather
to be attributed to the final production process of the coins (i.e. minting). The
transportation and handling costs of 1 and 2 euro cent coins are also
significant. The demand for 1 and 2 euro cent coins is increasing because these
coins are not circulating but are hoarded. The loss rate for both denominations
is very high and there is no indication that this trend would stop. Given the
'negative' seigniorage on these coins and the high loss rate, the continued
issuance of 1 and 2 cent coins appears to be a loss-making activity for euro
area Member States with a global loss that could exceed 370 million euro. ·
Public
acceptance of the continued issuance: citizens are generally positive but some
private key stakeholders are open to explore alternatives to status quo Evidence from
Eurobarometer polls shows that citizens are generally satisfied with the
current coin denominations with somewhat less support for the 1 and 2 euro cent
coins. Given that many prices are still set at euro cent level, the two
denominations remain useful to provide change, except in Finland or the Netherlands where cash payments are rounded. From the
business perspective, the position of cash-related businesses such as Mints,
banks, cash transport companies and retailers on the issuance of 1 and 2 euro
cent coins is of particular interest. Mints support the continued issuance of
these coins, since they represent a substantial part of their activity. They do
not have to cover the losses attached to their production, which are charged to
the treasury. Banks take a neutral view on the topic, since they are able to
pass the costs attached to their customers via the handling fees. The cash
processing industry earns money with transportation and processing of cash.
Therefore, this industry, generally speaking is positive on handling of any
coin denomination. However, from a logistical point of view transportation of
coins is quite cumbersome and fees in some cash processing industries are
rather based on the value processed and transported rather than on the quantity
of coins or weight. The vending
machine industry does not use these coins, while retailer organisations do not
have firm views on whether to maintain them. SCENARIO OF ISSUANCE
AT REDUCED COSTS ·
The
costs of continued issuance could be reduced by changing the raw
material of the coins Two major
options to reduce issuance costs have been identified. The first option is to
change the composition of the coins and optimize exiting manufacturing
tolerances or use cheaper metal such as stainless steel, while keeping the size
and parameter of the coins unvaried. The use of less precious metal could in
some cases lead to a change of the colour of the new coins (e.g. light grey). While
the views on the potential alternative compositions of the 1 and 2 euro cent
coins (stainless steel, aluminium, zinc) and the size of the potential cost
reductions diverge, it is evident that the potential to save costs is real.
Nevertheless, the impact of the first option on the overall cost level would
remain relatively limited as the cost of the raw material constitutes only a
minor part of the total costs of the finished product. Important differences in
production costs between euro area Member States are not due to the costs of
the raw material or the blank production process but have to be attributed to
the final production process of the coins. ·
The
costs of continued issuance could be reduced by enhancing the
efficiency of the coin production process The second
option to reduce the issuance costs would be to focus on the high costs related
to the final production process of the coins (such as minting). In this regard,
there is clearly a need to investigate more closely the potential inefficiencies
that would need to be addressed in the final coin production process. The
application of both options while continuing the issuance of the 1 and 2 euro
cent denominations seems to bear potential for substantial savings. QUICK
WITHDRAWAL SCENARIO ·
Citizens'
view on a possible withdrawal scenario: mainly fear of inflation There is an
overall satisfaction with the euro coin denominations in general. The few
people dissatisfied with the present coin denomination structure generally
indicate that they would like the 1 and 2 euro cent coins to be withdrawn. The impact of a possible
withdrawal of these denominations on inflation is a key concern of citizens.
However, it is more likely that the perceived inflation would be the real
problem rather than the impact of the withdrawal of the coins on the real
inflation. The euro changeover in 2002 showed that inflation perceptions and
measured inflation can deviate significantly. There was a strong belief of the
public that prices increased extensively but inflation was actually not higher
before and after the Euro introduction. A similar misperception could appear in
case of the withdrawal of the 1 and 2 cent coins. Against this background, a
possible withdrawal should be accompanied by a timely and targeted information
campaign to address the issue. Generally speaking, it
appears that consumer organizations are in favor of continued issuance of the
small coins, it being understood that consumer organizations provided only
rather partial replies to the questionnaire on the consumers' view. Consumer
and retailer associations are indeed expecting that prices for some goods would
increase at the moment 1 and/or 2 euro cent coins are withdrawn. Contrary to
consumers and retailers, the European Central Bank and the majority of euro
area Member States do not expect a noticeable impact on inflation in case the 1
and/or 2 euro cent coins are withdrawn, provided that appropriate rounding
rules are applied. ·
The
Member States' views on a possible withdrawal scenario are divided Generally
speaking, Member States seem to be reserved on the question of a potential
withdrawal. The Member States response rate to the questionnaire on the view on
a possible withdrawal scenario was relatively low and there were a number of
respondents, which have not provided a clear answer to this question. A small
majority of the Member States stated that the issuance of the two smallest euro
coin denominations should be ceased. Member States which have abolished smaller
denominations of their (former) currency over time are rather open-minded with
regard to the withdrawal scenario. The two euro area Member States where 1 and
2 euro cent coins do not circulate de facto (Finland and the Netherlands) are in favour of a withdrawal scenario. ·
Possible
withdrawal and key stakeholders' business: mints fear losses but impact on
other private key stakeholders is rather limited The mints
indicated that the cessation of issuance would negatively impact on their
business. Overcapacities in terms of production would force some mints to
downsize or close down production units to some extent. By contrast,
the replies from the coin processing industry are rather positive regarding the
withdrawal exercise even though the abolition of the 1 and 2 euro cents would
cause some minor losses for some cash in transport companies. Retailer
organisations have not voiced a common opinion but some of them indicated that
the storage and handling costs are not substantially different from the costs
related to other euro coin denominations. Some voiced concerns on launching a
withdrawal scenario during the current economic crisis given that consumers
would likely to perceive changes in the coin denomination structure as a way to
increase prices. ·
Appropriate
timing and information campaign is considered as crucial for success of a
possible withdrawal In times of
economic and financial downturn and particularly in Member States that are
confronted with challenging economic adjustment programmes, citizens are
sensitive to any changes that could or are perceived as impacting their
financial situations. Several stakeholders signalled that disregarding their
overall positive attitude vis-à-vis the withdrawal scenario, such scenario
would only be acceptable if it took place at a politically appropriate moment
of relative economic stability. In addition, key stakeholders
emphasized that any withdrawal scenario should be accompanied by a
timely and appropriate information campaign. FADING OUT
SCENARIO ·
The
fading out scenario implies the introduction of rounding rules with cash users
having to develop new payment habits Like under the quick
withdrawal scenario, legally binding rounding rules would have to be introduced
in the case of a fading out for the sake of legal certainty. Habits of euro
cash users would change. Rounding would also have to take place in
situations where the availability of 1 and/or 2 euro cent coins would still
allow for the exact payment of the fractional sum, which could lead to adverse
reactions from some customers ·
Fading
out would cause a rather automatic elimination of the 1 and 2 euro cent coins
from circulation due to the very high loss rate Upon cessation of
issuance by the Member States under the fading out scenario, the high loss rate
of the 1 and 2 euro cent coins would become instrumental for a fast and massive
disappearance of these denominations from circulation over a limited period of
time (3 to 4 years). In an early phase of the scenario, cash users would most
probably more actively 're-inject' the coins into circulation through payments
in supermarkets and at retailers which, in return would contribute to a faster
grower disappearance of the coins via the dispatch of the received coins to
banks and central banks for absorption. However, it should be noted that the
speed of the fading out could substantially differ across euro area Member
States due to factors such as the substantially different amounts of coins in
circulation, numbers of cash transactions and existing payment habits. Because of the rather
automatic disappearance of coins, there are no withdrawal costs as would be the
case under the quick withdrawal scenario. Nonetheless, there would remain some
costs for the handling of these coins until their disappearance from
circulation which mainly supermarkets, retailers and banks would have to bear. The
legal tender of these coins would be terminated when their circulation would
become purely residual. KEY
ADVANTAGES AND DISADVANTAGES OF THE FOUR SCENARIOS A
major advantage of both the status quo and the issuance at reduced costs
scenario is that the existing cash payment habits would not be disrupted. This
is not true for the quick withdrawal and fading out scenario which would both
call for rounding rules and changes in payment habits. While
being attractive from a cash user perspective insofar as no new habits would
have to be established, the status quo is quite unattractive from a cost
perspective since it could perpetuate the situation of negative seigniorage in
many euro area Member States. The issuance at reduced costs scenario, on the
contrary, would allow reducing issuance costs by changing the raw material of
the coins and/or enhancing the efficiency of the coin production. Important
cost savings could also be achieved through the quick withdrawal or fading out
scenario. The discontinuation of the 1 and 2 euro cent coin issuance would make
an end to the negative seigniorage and reduce the overall coin handling costs. The
costs of an information campaign that could be needed must also to be taken into
account when weighing the various options. Under
the fading out scenario, the high loss rate of the 1 and 2 euro cent coins
would promote a fast disappearance (3 to 4 years) of these denominations from
circulation thereby avoiding the costs that would be related to the active
withdrawal of coins in a very short period of time as under the quick
withdrawal scenario. However, supermarkets, retailers and banks would have to
bear the costs
for the handling of these coins until they have disappeared from circulation. Discussions
between stakeholders are needed on the basis of these 4 scenarios. If agreement
would be reached on a preferred scenario, the Commission will come forward with
the necessary proposals. ANNEX SUMMARY OF
SURVEY QUESTIONS Questions on status
quo Demand and
habits over time, including rounding: 1. What is the
demand for 1 and 2 euro cent coins and has it changed since its first issuance?
Is
there any shortage or surplus of these coins? 2. Circulation
and re-use of 1 and 2 euro cent coins: what is the rate of loss[45] for 1 and 2
euro cent coins? 3. Has the use
of 1 and 2 euro cent coins as means of payment changed over time? If yes, what
is the nature of the change(s), especially with regard to the introduction of
new payment tools and consumers' habits and preferences? 4. What is the
experience of the cash in transit industry with euro coin transports to/in Finland and the Netherlands in comparison to other Member States? Was there any change due to the
introduction of rounding rules in these countries? 5. Are there any
prevailing rounding rules for cash payments and are electronic payments treated
differently or equally for the purposes of rounding? Acquisition
and production costs: 6. Do
production/acquisition costs of 1 and 2 euro cent coins exceed, correspond to
or fall below the face value? 7. What are the
costs of the use of 1 and 2 euro cent coins (e.g. handling cost, storage cost)
in retail business compared to the one of other denominations? Questions on the
withdrawal scenario Need for
implementing measures 8. Should the
issuance of 1 and/or 2 euro cent coins cease, which implementation or
accompanying measures would be appropriate? How long would it take
to perform these measures? 9. Should the
issuance of the 1 and/or 2 euro cent coins cease, how would euro area Member
States arrange the withdrawal of the coins issued? Impact on
inflation 10. Should the issuance of 1
euro cent cease without introducing rounding rules, what would be the impact on
pricing and inflation? Which accompanying measures would be helpful in order to
avoid impacts on pricing? Impact
on other coin denominations 11. Would the
cessation of 1 and/or 2 euro coins have any impact of payment in cash on items
costing less than 5 euro cent? 12. Would the cessation of 1
and/or 2 euro cent coins have any impact on the production or use of other euro
coin denominations (such as the 5 euro cent)? Would it have any impact on the
use of electronic means of payment? Impact on key
stakeholders 13. Should the issuance of 1
and 2 euro cent coins cease what impact would business expect on their field of
action? Which implementation measures would business consider necessary in
their field of action? How long would it take to perform these implementation
measures? 14. Should the issuance of 1
and/or 2 euro cent coins cease what impact would mints expect on their field of
activity in terms of time and cost (e.g. termination of long-term contracts on
the supply of blanks)? What impact would occur in the mints' field of tasks and
business and other euro coin denominations in particular and which
implementation measures would be required in mints' field of tasks and
business? How long would it take to perform these implementation measures?
Statistics on
small denominations Currencies before
introduction of the Euro. Smallest denomination € cent equivalent Source :
European Central Bank and Commission calculations. Currencies before
introduction of the Euro. 2nd smallest denomination € cent equivalent Source :
European Central Bank and Commission calculations. Currencies before
introduction of the Euro. 1st and 2nd smallest
denomination € cent equivalent Source
: European Central Bank and Commission calculations. Currencies before
introduction of the Euro. 1st and 2nd smallest
denomination Purchasing power
parities (cents) Source
: European Central Bank and Commission calculations. Currencies before
introduction of the Euro. 1st and 2nd smallest
denomination € cent equivalent Country || Euro (cents) Smallest denomination || 2nd smallest denomination Finland || 1.68 || 8.41 Malta || 2.33 || 4.66 Netherlands || 2.27 || 4.54 Cyprus || 1.71 || 3.42 Spain || 0.60 || 3.01 Portugal || 0.50 || 2.49 Luxembourg || 0.62 || 2.48 France || 0.76 || 1.52 Ireland || 0.63 || 1.27 Belgium || 0.62 || 1.24 Italy || 0.52 || 1.03 Germany || 0.51 || 1.02 Slovakia || 0.33 || 0.66 Estonia || 0.32 || 0.64 Greece || 0.15 || 0.29 Austria || 0.07 || 0.15 Slovenia || 0.04 || 0.08 Source :
European Central Bank and Commission calculations. Currencies before
introduction of the Euro. 1st and 2nd smallest
denomination Purchasing power
parities (cents) Country || Purchasing power standards (cents) Smallest denomination || 2nd smallest denomination Finland || 1.38 || 6.90 Malta || 3.16 || 6.31 Netherlands || 2.09 || 4.17 Cyprus || 1.91 || 3.82 Spain || 0.65 || 3.23 Portugal || 0.61 || 3.03 Luxembourg || 0.50 || 2.00 France || 0.67 || 1.34 Ireland || 0.58 || 1.16 Belgium || 0.55 || 1.10 Italy || 0.49 || 0.99 Slovakia || 0.49 || 0.98 Germany || 0.49 || 0.98 Estonia || 0.46 || 0.92 Greece || 0.16 || 0.32 Austria || 0.07 || 0.13 Slovenia || 0.05 || 0.10 Source :
European Central Bank and Commission calculations. International
comparison. 1st and 2nd smallest denomination € cent equivalent Source
: European Central Bank, National Central Banks and
Commission calculations. International
comparison. 1st and 2nd smallest denomination Purchasing power
parities (cents) Source
: European Central Bank, National Central Banks and
Commission calculations. International
comparison. 1st and 2nd smallest denomination € cent equivalent Code || Country || Euro (cents) Smallest denomination || 2nd smallest denomination NO || Norway || 12.83 || 64.16 SE || Sweden || 11.07 || 22.15 DK || Denmark || 6.71 || 13.42 NZ || New Zealand || 5.68 || 11.36 CN || China || 5.56 || 11.12 CZ || Czech Republic || 4.07 || 8.13 CH || Switzerland || 4.06 || 8.11 JP || Japan || 0.90 || 4.51 CA* || Canada || 0.73 || 3.63 US || United States || 0.72 || 3.59 HU || Hungary || 1.79 || 3.58 IS || Iceland || 0.62 || 3.10 LV || Latvia || 1.42 || 2.83 BR || Brazil || 0.43 || 2.15 TK || Turkey || 0.43 || 2.14 Euro || Euro Area || 1.00 || 2.00 SA || Saudi Arabia || 0.96 || 1.92 AR || Argentina || 0.87 || 1.74 ME || Macedonia FYR || 0.81 || 1.63 AU || Australia || 0.74 || 1.48 RO || Romania || 0.24 || 1.18 UK || United Kingdom || 0.58 || 1.15 BG || Bulgaria || 0.51 || 1.02 ZA || South Africa || 0.50 || 0.99 ID || Indonesia || 0.41 || 0.82 LT || Lithuania || 0.29 || 0.58 MX || Mexico || 0.29 || 0.58 PL || Poland || 0.24 || 0.49 KO || Korea || 0.06 || 0.32 IN || India || 0.15 || 0.31 HR || Croatia || 0.13 || 0.27 RU || Russia || 0.02 || 0.12 Note:
Issuance of the Canadian one cent coin ceased on 4 February 2013. Source:
European Central Bank, National Central Banks and Commission calculations. International
comparison. 1st and 2nd smallest denomination Purchasing power
parities (cents) Code || Country || Purchasing power standards (cents) Smallest denomination || 2nd smallest denomination NO || Norway || 8.21 || 41.04 CN || China || 15.68 || 31.36 SE || Sweden || 8.57 || 17.14 CZ || Czech Republic || 5.53 || 11.07 NZ || New Zealand || 5.36 || 10.73 DK || Denmark || 4.92 || 9.85 HU || Hungary || 2.90 || 5.79 CH || Switzerland || 2.56 || 5.11 AR || Argentina || 2.55 || 5.10 LV || Latvia || 2.12 || 4.24 ME || Macedonia FYR || 2.12 || 4.23 SA || Saudi Arabia || 2.07 || 4.13 US || United States || 0.76 || 3.82 TK || Turkey || 0.74 || 3.70 BR || Brazil || 0.72 || 3.62 JP || Japan || 0.71 || 3.57 CA* || Canada || 0.61 || 3.04 IS || Iceland || 0.55 || 2.77 ZA || South Africa || 1.23 || 2.45 BG || Bulgaria || 1.11 || 2.21 RO || Romania || 0.44 || 2.19 Euro || Euro Area || 1.06 || 2.12 ID || Indonesia || 0.99 || 1.98 IN || India || 0.68 || 1.37 UK || United Kingdom || 0.58 || 1.16 AU || Australia || 0.51 || 1.03 LT || Lithuania || 0.47 || 0.93 MX || Mexico || 0.46 || 0.93 PL || Poland || 0.41 || 0.81 KO || Korea || 0.09 || 0.46 HR || Croatia || 0.20 || 0.39 RU || Russia || 0.06 || 0.29 Note:
Issuance of the Canadian one cent coin ceased on 4 February 2013. Source :
European Central Bank, National Central Banks and Commission calculations. Total
circulation of Euro banknotes and coins (€ billion) Source : European Central Bank and Commission calculations. Total circulation of Euro banknotes and coins (€
billion) || 2002 || 2012 || Increase (%) || January || August Banknotes || 221.5 || 896.4 || 304.7% Coins || 12.3 || 23.5 || 91.1% Total || 233.8 || 919.9 || 293.5% Source :
European Central Bank and Commission calculations. Total circulation of Euro coins (€ billion) Source : European Central Bank and
Commission calculations. Total circulation of Euro coins (€ billion) || 2002 || 2012 || Increase (%) || January || August 2 cents || 0.06 || 0.26 || 318.7% 1 cent || 0.12 || 0.40 || 246.8% Coins (all denominations) || 12.30 || 23.50 || 91.1% Source : European Central Bank and
Commission calculations. Total circulation of Euro coins (quantity, billion) Source : European Central Bank and
Commission calculations. Total circulation of Euro coins (quantity,
billion) || 2002 || 2012 || Increase (%) || January || August 2 cent || 6.1 || 25.6 || 76.1% 1 cent || 5.8 || 20.2 || 71.2% Coins (all denominations) || 38.1 || 100.7 || 62.2% Source : European Central Bank and
Commission calculations. Value of 1 and 2 Euro cent (% over total value
of coins) Source : European Central Bank and
Commission calculations. Value of 1 and 2 Euro cents (% over total value
of coins) || 2002 || 2012 || Increase (%) || January || August 2 cents || 0.50% || 1.09% || 119.1% 1 cent || 0.95% || 1.72% || 81.5% Total (1 and 2 cents) || 1.45% || 2.81% || 94.5% Source :
European Central Bank and Commission calculations. Percentage of
1 and 2 cent coins over total coins, August 2012 (value) Source :
European Central Bank and Commission calculations. Number of 1 and 2 Euro cent (% over total number
of coins) Source : European Central Bank and
Commission calculations. Number of 1 and 2 Euro cent (% over total number
of coins) || 2002 || 2012 || Increase (%) || January || August 2 cents || 16.07% || 25.46% || 36.9% 1 cent || 15.31% || 20.09% || 23.8% Total (1 and 2 cents) || 31.38% || 45.55% || 31.1% Source :
European Central Bank and Commission calculations. Percentage of
1 and 2 cents coins over total coins (number) August 2002 August 2007 August 2012 Source : European Central Bank and Commission calculations. Net issuance
of 1 and 2 euro cent coins at national level || || Eurobarometer
results at country level || Base: those who answered there were too many coins with different values || Base: those who answered there were too many coins with different values || Base: those who found it rather or very difficult to distinguish and handle the coins || Base: those who found it rather or very difficult to distinguish and handle the coins [1] The loss rate can be defined as the calculation of one minus
the circulation rate, the latter being the number of coins returned to the
central bank divided by the number of coins put into circulation. [2] n=size of the addressees that received the questionnaire. [3] As a recent example, the period for the withdrawal of the 50
øre coin in Sweden in 2010 lasted one month. [4] Coins to be changed after the withdrawal period has ended
would likely be hoarded coins. As central banks would probably ask for a change
fee, it is uncertain – given the low value of the two denominations – that the
change of 'late coins' (even of high amounts) would actually occur. [5] See Article 1 of Regulation (EC) No 975/98 (Official Journal
L 139, 11.5.1998, p. 6), as amended by Council Regulation
(EC) No 423/1999, [6] Former Article 106 of the Treaty establishing the European
Community. [7] Pursuant to Regulation (EC) No 975/98 (Official Journal L
139, 11.5.1998, p. 6), as amended by Council Regulation
(EC) No 423/1999 and Council Regulation (EU) No 566/2012, and Regulation (EU) No 651/2012 (Official Journal L 201, 27.7.2012,
p. 135), the 2-euro coin can be issued as regular coin, commemorative
coin or common commemorative coin as the case may be. [8] Official
Journal L 83 of 30.3.2010, p 70. [9] Article 11 of Council Regulation No 974/98 on the introduction of
the euro (Official Journal L 139 of 11.5.1998, p. 1). [10]The same procedure under Article 128,
paragraph 2 of the TFEU would apply also, should the composition of the 1 and 2
euro cent coins (e.g. in order to lower production costs) rather than the
number of euro coin denominations be changed. [11] See Pattanarangsum,
The Optimal Currency Denomination Structure (2011) and Leo Van Hove, Optimal Denominations
for Coins and Banknotes: In Defence of the Principle of Lost Effort, in:
Journal of Money, Credit and Banking, Vol. 33 No 4 (2001). [12] The corrected
circulation (cc) is defined as:
[13] There are two other interesting results. First, the index is
significantly higher for the 50€ banknotes than for all the others
denominations, pointing to extensive use of this denomination. Second, the
index for the 2€ and 1€ coins is higher than for all other coins and even than
the index computed for the 5€ banknote. [14] For a few goods and services of consumption at large-scale
(e.g. petrol, telecommunication services) a custom is established to sell the
good or service to the thousandths part of the euro (three digits behind the
comma). Exact cash payment of these fractional prices cannot be effectuated
with the existing coin denominations and rounding has to be applied for both
cash and non-cash payment of the sum of the fractional prices. [15] The higher the value of a good or service is, the less the use
of fractional prices is important from a mere point of view of setting the
highest but still generally accepted price. However the psychological effect of
using the digits 8 and 9 for price setting (the price looks attractive) remains
equally important even for higher amounts (e.g. EUR 9,98 or EUR 13,89 versus
EUR 2.998,- or EUR 24,890). [16] Fractional prices play also an economic and psychological role
where payment of the product(s) is usually done electronically, such as
large-scale purchase of technical products (e.g. spare parts) in the industry. [17] Except for prices with more than two digits behind the comma,
where rounding to the nearest cent has to be applied (for both cash and
non-cash payments). [18] In principle Finland and the Netherlands issue very little
amounts, amongst others for collector purposes (sets of circulation coins with
all 8 denominations) The average issuance since the introduction of the
rounding is as follows: Netherlands (2005-2012): 892.270 (1 euro cent coins)
and 921.380 (2 euro cent coins), Finland (2002-2012): 92.910 (1 euro cent coins)
and 63.430 (2 euro cent coins). In 2012 the Netherlands issued nearly 8 million
1 and 2 euro cent coins (which were on stock) to react to requests from Dutch
commercial banks. [19] Prices indicated in sub-divisions smaller
unit than cents (as typically done for telecommunication services with
reference to minutes or seconds or for petrol with reference to one liter)
would have to be rounded to the nearest cent. [20] Act 890/2000 on the rounding of euro-denominated payments as
amended by Act 496/2002 provides that "a payment may be rounded"
[according to an established rounding parameter] "also when debiting it in
writing or when recording it as debt in lieu of payment, or when paid for a
bank card or another payment card". "Cent amounts shall not be
rounded if so agreed on by the parties or if the payment is effected by credit
transfer between accounts". [21] As an example, for the sum of 150,30 or 150,70 to be paid in cash,
the purchaser had to pay 150,50, whereas for the sum 150,80 the amount of 151
had to be paid. [22] Fractional prices are prices which if paid cash to the exact
amount would require the use of one or more 1 and/or 2 euro cent coins at the
moment of payment. [23] Given the non-visibility of direct cash costs, there is a risk
of a misperception that the provision of cash comes for free. [24] Seigniorage of coins is the difference
between the face value of a coin and the costs to produce and issue it. The
positive difference between the two parameters ('positive seigniorage') is a
lucrative source of state income. Given that coins are issued in high
quantities, production and issuance costs decrease with any increase of coin
issuance. [25] A majority of euro area Member States uses their national mint
for euro coin minting purposes. Some euro area Member States do not have own
mints and commission mints of other Member States for minting. Germany has 4
public mints. For information on the mint structure of Member States see http://ec.europa.eu/economy_finance/euro/cash/mints/index_en.htm [26] 20,2 bn 1 cent coins = 202 million euro face value. 25,6
billion 2 cent coins = 512 million euro face value. [27] No figures are available on the loss rates regarding the other
euro coin denominations for direct comparison. However, it is understood that
no coin denomination can reach a loss rate of 0% as, depending on the way coins
are used in cash transactions (e.g. vending machines, exposure to dirt and
dust, mechanical impacts and corrosion) coins can become unfit for circulation
over time and need to be replaced. [28] Flash Eurobarometer 362, 2012 p.14. [29] Flash Eurobarometer 362, 2012 p. 17. [30] As regards the increasing relevance
of payment transactions through a payment card see Commission Staff Working
Paper: Impact Assessment accompanying the Document Commission Recommendation of
18 July 2011 on access to a basic payment account (SEC 2011(906)). [31] Additional
savings while producing smaller 1 and 2 euro cent coins are not an option given
that the current 1 and 2 euro cent coins are already small and the parameters
are set to meet the practical needs of euro cash users and amongst others
visually impaired people in particular. The legally binding technical
specifications laid down in Council Regulation (EC) No 975/98, as discussed with
euro cash users during the legislative process provide. When preparing the
introduction of the euro in 1998, the technical specifications of the coins
were also discussed with euro cash users. A consensus was reached that the
minimum weight of the euro coins is 2 grams whereas the variation of the
diameter between two coins must be 2 mm at least. [32] Letter from the Mint Directors Working Group, Utrecht, 23
January 2013. [33] The second and third solution would require extensive testing
and further studies in order to check the technical feasibility of these
options. [34] Concurrent Technologies Corporate, 31 August 2012, Alternative
Metals Study, Final Report. In the study, a very thorough assessment is
undertaken to assess the potential use of alternative metals covering issues
such as the cost of the material, the technical properties of material, the
environmental impacts and including also coin striking trials on the sets of
alternative candidate materials. Most of the analysis focused on higher
denomination coins (e.g. 5 dollar cent, 25 and 50 dollar cent, 1 dollar coin)
whereby one of the main concerns was the potential impact a change in
composition might have on vending machines and weight-based coin acceptance
equipment. Rather often, the potential savings to be made by the US Mint were
overshadowed by the additional costs incurred by the coin handlers. With regard
to the 1 dollar cent coin, the study concluded that copper-plated steel 1 cent
coins (i.e. composition of 1 euro cent coin) would offer no costs savings from
the incumbent copper-plated zinc 1 cent coin and no other alloys matched the required
specifications for the coin. [35] Ehrmann M. (2006), "Rational inattention, inflation
developments and perceptions after the euro cash changeover", European
Central Bank, Working paper no. 588. INSEE (2007),
"La mesure du pouvoir d'achat et sa perception par les ménages" in "Rapport
sur les comptes de la Nation de 2006". [36] http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK/2013/2013_01_21_summary
_monthly_report_january.html [37] Figures from examples in Europe are not available. As an
example from outside Europe, a recent "kettle coin campaign" during
the Christmas period in Ottawa (Canada) brought receipts of around 150.000 €
(coins of all Canadian dollar denominations). The charity organization had to
face around 1,5% of the receipts (ca. 2.300 €) to cover related cash processing
and bank services. [38] The Swedish case shows that the order of withdrawals over time
does not necessarily have to follow the denomination scale. The 25 øre coin was
withdrawn seven years before the withdrawal of the 10 øre coin in 1992. [39] Study carried out by the Desjardins Group (Canada)
in 2006. [40] http://money.cnn.com/2012/02/15/news/economy/pennies_nickels/index.htm?hpt=hp_t3 [41] See above chapter I.4. [42] The transportation costs under the withdrawal scenario are
likely to be an important factor in the overall withdrawal costs. On the
generous assumption that the return rate would be as high as the withdrawal
rate of the 50 øre coin in Sweden in 2010 (30% of the issued coins were
returned to central banks), the volume of issued 1 euro cent coins would amount
to 45.450 tons whereas the volume of returned 2euro cent coins would be around
65.208 tons. [43] At least from a mathematical point of view full disappearance
is not possible, given that the calculation by
means of the loss rate approaches zero without ever reaching it. [44] This amount is shaped by the size of the economy of the Member
State, the number and 'coin composition' of the cash transactions, the cash
payment habits and external factors such as coin migration across the euro
area. As an example for the latter, in 2012, around 37% of all coins in
circulation in Germany were issued abroad. [45] One minus the circulation rate, the latter being the number of
coins returned to the central bank divided by the number of coins put into
circulation.