The question of whether or not to scrap 1p and 2p coins has been raised once again in the UK, following a recent Treasury report. Public outcry ensued and the government was forced to reassure the country that it would not go ahead with the idea as it could hurt charities, small businesses and arcades, which rely on people spending their spare change.
This makes little sense. The UK should follow the lead of several other countries, which have ditched their low denomination coins, including Ireland, Canada, Australia and Sweden, among others. They serve little purpose in the economy today, are wasteful, and it’s hard to see how small businesses and charities could not adapt to a world without them.
The British public’s reticence to scrap its copper coins is tied to a number of reasons. The majority of these are sentimental and link the penny to “British values”. But, when it comes to playing their role as money, the coins have lost their value.
Money serves as a medium of exchange, a store of value, and as a unit of account. Originally money was minted from precious metals, like gold and silver. With time, precious metals were replaced by other metal blends, and the intrinsic value of coins diminished.
When the penny was introduced as a unit of currency in the UK in 1971, a pint of milk cost 5p. Today, average prices have gone up significantly. Nowadays pennies are worth virtually nothing (even penny sweets cost more than a penny now) and can serve only as a unit of account.
One of the biggest groups to complain about the loss of pennies has been small charities. They say they get huge amounts in donations from them. But if charities are to survive, they must explore alternative and innovative ways of fundraising. Similarly, small businesses must offer electronic payments to their customers to stay competitive. Good business is all about efficiency and competition at the end of the day.
Also, those people who want to donate to charity will keep donating using other coins. Similarly, those who prefer card payments would carry less cash to donate in their wallets regardless.
Digital payments, for their short period of existence, are already responsible for more than half of all payments in the UK. Contactless payments have pushed this trend even further. Getting rid of 1p and 2p coins is just a natural response to this trend – and it will save tax payers money.
The Royal Mint, which produces the country’s coins, does not release details of the cost of minting pennies. They were mostly made of copper until 1992, which would have made them cost more to make than their monetary value. Now they are made from a copper-plated steel. Figures for the US show that a one-cent piece cost the US Mint 1.5 cents to produce in 2016 (but these are made from copper-plated zinc).
So it’s hard to say if pennies cost the taxpayer in this sense. But a big issue with pennies is the fact that nobody really spends them. Despite claims that the penny is a valued part of British culture, literature and history, statistics show little love for these coins.
Around 8% of coppers are thrown in the bin every year. According to the Royal Mint, there are 11,430m 1p coins (worth £114.29m) and 6,714 2p coins (worth £134.273m) in circulation so 8% would lead to substantial waste. Millions more end up behind sofas or tucked away in tins and forgotten about. Replacing them is surely a waste of money.
Another popular area of concern is that cutting out pennies (and rounding up or down as a result) will cause inflation. But even this fear that retailers would take advantage of a change in currency to round prices up is mistaken. Retailers already use the 99p trick to make products look cheaper and encourage customers to purchase it. Rounding up will give people more realistic and honest information about prices. It would help us buy fewer things that are not within our budgets.
Another trend that cannot be ignored is the rise of digital money. Cryptocurrencies challenge the idea of traditional money, how it is managed by central banks and also transforms our understanding of money. They might be a way off from entirely replacing traditional money, but the growth of cryptocurrencies and other forms of digital payments symbolise the increasing obsolescence of 1p and 2p coins.