by Louis Golino for CoinWeek ………
The 17 members that share the euro, known as the Eurozone, are considering eliminating the two lowest denomination circulating euro coins, according to a new report from the European Commission.
The European Commission is the European Union’s executive branch.
The proposals put forth in the May 14 report would need to be crafted into legislation and approved by the member states of the Eurozone before they could be implemented.
The report was requested by two other European Union institutions, the European Parliament, which is an elected body that represents the citizens of the EU, and the Council of Ministers, which represents the member states.
In particular, the report lays out four main ways of dealing with the problems presented by the low denomination euro coins.
The main problem is that, as is the case in other countries like the United States, those coins cost more to produce than their face value.
In addition, because people tend to hold on to them and not recirculate them, the coins are in great demand for commerce purposes. That results in millions of euros of negative seigniorage, in fact, 1.4 billion euros have been lost producing these coins since 2002.
Since that time, according to the report, 45.8 billion one and two euro cent coins have been minted, which works out to 137 for each citizen of the Eurozone. That is roughly half of all euro coins issued during the period, though it only amounts to 714 million euros, according to the May 14 report.
The four possible approaches laid out in the report are to either keep producing the coins at a loss, to withdraw them either quickly or over time, or to continue making them but to use alternative metals to produce the coins.
A recent U.S. study found that changing the composition of one and five cent coins may not solve the problem of losing money on these coins. That is because most other metals such as steel cost almost as much as the metals currently used and because there are many other costs involved in making the coins such as labor and transportation.
And when Canada announced it would stop making one cent coins in 2011, one of the issues noted by Canadian authorities is that pennies also impose other costs on businesses such as obtaining the coins, the time to count them out, etc.
Public opinion studies of Eurozone citizens have found they have mixed views on these coins. On the one hand, more than 80% of people in recent polls said they favor eliminating them, according to a June 10 article in Coin World, but at the same time, EU citizens are clearly worried that getting rid of the coins will increase inflation, a point which is underscored in the EU report.
Most economists believe that rounding does not increase inflation. The report states that studies based on the experience in countries that use rounding, including Slovakia, the Netherlands, and Finland, have shown that rounding had only minimal inflationary impacts. However, as was the case when the euro was first implemented, rounding could increase the psychological perception of inflation.
The four possible scenarios laid out in the European Commission report include:
- Status quo- The coins would continue to be issued with the same legal and material context.
- Issuance at reduced costs- The coins would continue to be made, but their material composition would be changed to reduce costs, and the production processes would be made more efficient.
- Quick withdrawal- The coins would no longer be minted, rounding rules would be instituted, and the coins would be withdrawn from circulation. At the end of this process the coins would no longer be legal tender.
- Fading out- The coins would no longer be made, and transactions would be rounded, but the coins would continue to be legal tender and would be used “only for payment of the rounded final sum.” The coins would gradually disappear from circulation especially because they would not be very convenient for transactions.
So far the European Commission has discussed the pros and cons of issuing the coins “with business and consumer associations, treasuries, mints, and central banks.”
The next step is to discuss the proposals with stakeholders and Eurozone member states to see if a consensus emerges that could form the basis for a legislative proposal.
The Eurozone was established on January 1, 2002 with 12 members.
Today the Eurozone includes: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
In addition to the 17 countries that are formal members of the Eurozone, the micro states of Vatican City, Monaco, and San Marino, which are well known for their collector coins, also have agreements to use the euro as their currency. On July 1 Andorra will join that group.
The global financial crisis has resulted in a great deal of pressure on the economies and banking systems of the Eurozone, and Greece in particular has had to seriously consider whether it would be better off leaving the currency union.
But so far that has not happened, and the member states continue to take steps to try to shore up their banking systems and reform their economies.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.