What does the future hold for coin?

By : Colin Gordon

May 19, 2016 01:00 PM

Over the last few years, several countries including Canada and Ireland have removed their lowest denomination coins from circulation and the debate around the future of coins in other countries has continued to attract attention.


The European Commission recently outlined proposals for every member of the Eurozone to drop one and two cent coins from circulation, while in the US, this has been a question that's been around for decades.


Way back in 1989, a bill was first introduced to the House of Representatives calling for all cash transactions to be rounded to the nearest five cents, in order "to provide a method for removing one-cent pieces from cash transactions".


As the continued existence of the penny (and coins in general) proves however, the efforts to get rid of these from our spending habits don’t appear to be getting very far.  The 1p coin in the UK is still by far the most common coin in circulation with around 11 billion in circulation (according to The Royal Mint) – accounting for near 40% of all coins in the UK. Removing small denomination coins is an issue that's cropped up again and again, as inflation continues to diminish the spending power of the coin.


Even US President Barack Obama suggested he was open to the idea of scrapping it back in 2013.  Also last year, Treasury Secretary Jacob Lew also offered his view, noting that the department has been monitoring the US penny for some time. "It's a question that we do have to ask because you have to always make sure that the currency reflects what the needs of commerce are and what the value of currency is." So could the time be right for countries such as the US and UK to finally retire the venerable penny? And if so, what will the currency situation of the future look like?


The arguments for and against


One of the biggest arguments in favor of ditching the penny is an economic one – simply put, every penny costs more to make than it's worth. Therefore, every time one is minted, the government loses money and this holds true across many countries.


For example, the US Mint estimated that it cost 1.66 cents to make each penny in 2014. While this was down from 2.4 cents the previous year, it's unlikely to ever get much lower, as there are no alternative metal compositions that can reduce the manufacturing unit cost of the penny below its face value. Therefore, eliminating the penny could save the US around $60 million a year. On the other side of the debate, there are several benefits to the use of coinage in general. For instance, they are still the most convenient method of making small payments for many people, offer a long lifespan and are recyclable. In the long run, the cost of manufacturing may well pay for itself.


There are also nearly 29 billion coins of all denominations in circulation in the UK alone.  There’s also the great example of coin when teaching children to budget and save money. Nothing is quite so tangible as giving a few coins to a piggy bank! What’s more, it's also claimed that many people are still support of the humble penny. In the US, for instance, a 2014 survey by Americans for Common Cents - a lobbying organisation which is in favor of the coin - found almost three-quarters of the public would prefer to keep the one-cent coin, with the main reason being that they are concerned about price increases as a result of rounding.


Organisations like charities also express concern about the effect scrapping the penny would have on their income. Admittedly, Americans for Common Cents is far from an impartial source, but it does show that any efforts to get rid of the low-denomination coin would be met with resistance from some parties. 


Examples from elsewhere


Should a country decide to drop its lowest-denomination coinage, there are plenty of case studies to show what the impact may be. The UK, for example, already has first-hand experience of this, as it scrapped its halfpenny coin - which had been in circulation in one form or another since the 17th century - back in 1984 as inflation gradually rendered it worthless. And more recently, nations like Australia and Ireland have also abandoned their lowest-denomination coinage.


For the US, the most relevant case study is likely to be their neighbour to the north. Canada finally eliminated its one-cent coin in 2013. Retailers were told to round up transaction totals to the nearest five cents from February 4th of that year - though businesses were able to continue accepting the coins indefinitely to help consumers with the phase out. A few consumers have expressed unhappiness with rounded calculations that may add a couple of cents to the cost of a coffee, but most people don't seem to miss it.


And with the Canadian government estimating savings of around CA$11 million a year, there's a clear economic case for such a move. If the penny’s days are numbered, coinage as a whole isn’t going away anytime fast. 


The challenges of coin continue to be one of the major financial technology solutions that financial institutions continue to look for cost-effective, self-service solutions for.  This is because for consumers - coins remain a practical, long-lasting and reliable way of completing a transaction that quite possibly will remain many people’s first choice for low-value payments.

Colin Gordon

Financial Services SelfServ, Marketing Manager

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Colin Gordon is a Global ATM Marketing Manager based at NCR’s R&D Center in Dundee, Scotland. Colin is responsible for the marketing of NCR’s financial hardware portfolio with a specific focus on activities such as demand generation, sales enablement, market analysis and customer engagements for the ATM business.