Across the Eurozone, a debate is brewing over the smallest denominations of currency, particularly the one and Two Cent Euro coins. While seemingly insignificant, these tiny copper-colored coins are facing increasing scrutiny and, in some nations, are actively being phased out. The question many are asking is: in an increasingly digital age, are these coins more trouble than they’re worth? This article delves into the compelling reasons behind the potential disappearance of the two cent euro and explores the economic and practical implications of their removal.
The core argument against the continued use of two cent euro coins, and their one cent counterparts, rests on a simple principle of economic utility. As famously pointed out by economist Gregory Mankiw in his 2006 New Year’s resolutions, when a monetary unit becomes so devalued that people leave it at the cash register for the next person, its functionality is seriously compromised. This sentiment reflects a growing feeling across Europe that the two cent euro coin has reached this point, becoming more of a nuisance than a facilitator of exchange.
Alt text: Detailed view of one and two cent euro coins showcasing their copper color and small size, highlighting the denominations.
Belgium is one of the pioneering nations taking concrete steps to address this issue. As of December 1st, 2019, Belgium implemented a mandatory rounding system for all cash payments. This policy, initiated by former Federal Economy Minister Kris Peeters, requires businesses to round the final cash total to the nearest five-cent increment. While businesses are still legally obligated to accept one and two cent coins, the underlying objective is clear: to gradually remove these coins from everyday circulation and simplify cash transactions.
The Belgian government’s rationale is straightforward and economically sound. According to official sources, these small denomination coins are deemed both costly and redundant. Consumer surveys within Belgium corroborate this view. A significant majority of Belgians express difficulty in using one and two cent coins compared to the Euro Area average. Notably, in a 2018 Eurobarometer survey, nearly three-quarters of Belgians voiced their support for abolishing these coins and implementing mandatory rounding to the nearest five cents. This widespread public agreement underscores the practical challenges associated with these tiny denominations.
Alt text: Image depicting the difficulty of handling small euro coins, showing a hand struggling to pick them from a wallet, emphasizing user inconvenience.
Businesses, too, find the handling of one and two cent euro coins inefficient and costly. Counting, sorting, and transporting these low-value coins is time-consuming and resource-intensive. Furthermore, they can contribute to delays at checkout counters as customers fumble to differentiate between the similar-looking one, two, and five cent coins. This combination of consumer inconvenience and business inefficiency leads to a low circulation rate, with many of these coins ending up forgotten in drawers, pockets, or piggy banks, effectively removed from the active economy.
The financial implications for national treasuries are also significant. A study conducted by the National Bank of Belgium revealed a surprising statistic: in 2014, the cost of producing a single one or two cent coin exceeded its face value, ranging from 2 to 2.5 cents. When factoring in transportation and storage costs, the economic loss becomes even more apparent. Ironically, demand for these loss-making coins has been on the rise since the euro’s introduction, primarily driven by businesses needing them to provide exact change. However, these coins rarely return into circulation as payment, leading to a paradoxical shortage of small denomination coins in 2018, further highlighting the systemic inefficiencies.
To explore potential solutions, Belgium conducted a trial in two towns, Waregem and Visé, for seven months. During this experiment, 200 businesses implemented cash payment rounding to the nearest five cents. The results were overwhelmingly positive. At the trial’s conclusion, approximately 80% of business owners and 78% of consumers expressed support for the rounding method, citing the elimination of the need for one and two cent coins as a major benefit.
Belgium is not alone in recognizing the advantages of phasing out these smallest denominations. Finland, for example, has never utilized one and two cent coins. Even before the euro’s official launch in 2002, Finland enacted legislation mandating rounding to the nearest five cents for cash transactions. The Netherlands followed suit in 2004, with most businesses adopting rounding practices based on expert recommendations, although not legally enforced. These successful examples from other Eurozone countries demonstrate the practical feasibility and acceptance of such policies.
However, widespread adoption across the entire Eurozone has been hampered by concerns, primarily related to inflation. A 2013 European Commission study acknowledged the loss-making nature of one and two cent coins across the euro area. Yet, it also identified a significant public attachment to these coins and a fear that their removal could trigger inflation. This perceived risk has created inertia in implementing a unified Eurozone-wide policy.
Interestingly, while Belgians are less sentimental about small euro coins compared to the Eurozone average, the concern about potential inflationary effects remains. A 2006 Flash Eurobarometer indicated that nearly four out of five Belgians believed removing one and two cent coins would lead to price increases. This perception, whether grounded in reality or not, is a significant hurdle to overcome.
The National Bank of Belgium’s study directly addressed these inflation anxieties. It investigated the potential mechanisms through which rounding could influence inflation, either positively or negatively. One fear is that businesses might exploit rounding by systematically increasing prices to maximize profits, thus contributing to inflation. Conversely, the study also pointed out that businesses would benefit from reduced costs associated with handling small coins, potentially leading to price reductions, especially in competitive markets, which could actually dampen inflation.
Analyzing the Dutch experience, the National Bank of Belgium found no evidence of an inflation spike following the introduction of rounding in 2004. Furthermore, public satisfaction with the number of euro coins in circulation significantly improved in the years after this change. Similarly, the Czech Republic removed its smallest denomination coins in 2008 without any apparent inflationary consequences. Canada’s elimination of the penny in 2013 also serves as a relevant example. Prior to implementation, the Bank of Canada predicted that any inflationary impact would be “insignificant and more likely non-existent,” a prediction that proved accurate.
The Belgian study further analyzed a 2004 scenario analysis and concluded that the potential inflationary effect of rounding in Belgium was likely to be minimal, estimated at around 0.11% initially and even less in subsequent years due to cumulative inflation and the decreasing real value of small coins. This suggests that businesses may have already been “naturally” rounding prices to the nearest five cents due to the impracticality of dealing with smaller increments.
These arguments are even more pertinent today, with continued inflation and the fact that businesses in Belgium have been legally permitted to practice rounding since 2014. While only about a third of businesses did so before mandatory rounding became law, this prior adoption further mitigates any potential inflationary impact of the nationwide policy.
The European Commission’s 2013 study also concluded that the inflationary effect of removing one and two cent coins across the Euro Area would be negligible. Currently, the Commission is even considering a proposal to phase out and ultimately withdraw these coins entirely, indicating a growing consensus on their limited utility.
However, the European Commission cautions about the potential for a “distortionary effect on perceived inflation.” Policymakers are keen to avoid repeating the apparent disconnect between perceived and measured inflation that occurred with the euro’s introduction. Therefore, effective communication is crucial. Belgium has taken this to heart, launching a public awareness campaign featuring friendly cartoon one and two cent coin characters with slogans promoting rounding, aiming to reassure the public and ensure a smooth transition.
Alt text: Belgian public awareness campaign posters with cartoon one and two cent euro coins, promoting cash rounding with slogans in French and Dutch.
In conclusion, the evidence strongly suggests that phasing out the two cent euro, along with its one cent sibling, is a pragmatic and economically sound policy. The minimal risk of inflationary impact, coupled with the significant benefits of simplified cash transactions and reduced costs for businesses and treasuries, makes a compelling case for their removal. With effective public communication, as demonstrated by Belgium’s proactive campaign, the transition away from these smallest denominations can be smooth and beneficial for all stakeholders in the Eurozone economy. The debate is shifting from “if” to “when” the two cent euro will largely disappear from our pockets and cash registers.
