The debate over small denomination euro coins is gaining momentum, particularly concerning the 1 and 2 cent pieces. A recent survey from SIA Latvijas Fakti in August 2023 reveals a growing public appetite for phasing out these smallest coins. This article delves into the increasing support for removing 2 Cent Euro coins from circulation, examining the reasons behind this shift, the proposed rounding mechanisms, and the potential benefits and challenges involved.
Rising Public Support for Ditching Small Change
Public opinion in Latvia, as tracked by Latvijas Banka since 2016, shows a clear trend: support for removing the smallest euro coins is on the rise. The latest survey indicates that 49% of Latvians now favor withdrawing 1 and 2 cent coins. This marks a significant increase from just 26% in 2016 and even from 41% in February 2023. Interestingly, while almost half the population supports the move, a significant 46% still believe these coins are necessary. This close split highlights the ongoing discussion and the need for careful consideration before any policy changes are implemented regarding the 2 cent euro and its smaller counterpart.
How Rounding Would Work Without 2 Cent Euro Coins
The core idea behind removing 1 and 2 cent euro coins isn’t about changing individual prices, but rather implementing a rounding system for the total purchase amount when paying with cash. Imagine your grocery bill comes to €12.23. With rounding, you would pay €12.25 in cash. Conversely, if your total was €12.22, you would pay €12.20. This rounding would only apply to cash transactions; digital payments would remain precise to the cent.
Experience from other countries that have adopted similar rounding practices suggests that it doesn’t lead to inflation. This is because, in the long run, the rounding up and rounding down instances tend to balance each other out in everyday cash transactions. For consumers, while some individual transactions might be rounded up slightly, others will be rounded down, aiming for a neutral financial impact over time.
Discussions and Progress in Latvia
Latvijas Banka has been actively exploring the possibility of optimizing euro coin denominations for several years. Recognizing the increasing public support, they have engaged in discussions with various institutions and businesses involved in cash handling. The goal is to find the most effective solutions for Latvia’s unique context, considering the needs of both its citizens and businesses.
A significant step in this direction is Latvijas Banka’s development of a draft law specifically addressing the rounding of total cash payments. Currently, these proposals are under review and discussion with the Ministry of Finance and the State Revenue Service. The primary focus of these discussions is on the practical implementation of rounding specifically on the final purchase total, ensuring that individual item prices remain unchanged and transparent.
Challenges in Implementation: Adapting Cash Registers
One of the most significant hurdles in implementing this change is adapting cash registers and point-of-sale (POS) systems. These systems need to be modified to automatically calculate and reflect the rounded total on receipts. This is not a simple software update; in Latvia, these changes also require certification to comply with existing laws and regulations.
For businesses, this translates to potential costs and a longer implementation timeline. Latvijas Banka, in collaboration with the Ministry of Finance, is actively seeking the most business-friendly solutions to mitigate these challenges. Finding cost-effective and efficient ways for businesses to update their systems is crucial for the smooth adoption of any new rounding rules associated with the removal of the 2 cent euro coin and its 1 cent counterpart.
The Benefits: Convenience, Savings, and Environmental Impact
The potential advantages of limiting the circulation of small denomination coins are multifaceted. For the public, it promises greater convenience – fewer tiny coins cluttering wallets and purses. Cashiers would also benefit from simpler cash handling processes. Furthermore, streamlining coin circulation can lead to cost savings for businesses and institutions involved in managing cash.
Beyond the economic and practical benefits, there’s a significant environmental angle. The European Union, including Latvia, is committed to achieving climate neutrality by 2050. Reducing reliance on resource-intensive processes like coin production aligns with these climate goals.
Studies highlight the considerable environmental footprint of coin production globally. The entire lifecycle – from mining metals to manufacturing, transporting, distributing, using, and recycling coins – contributes an estimated 2.1 million tonnes of CO2 equivalent greenhouse gas emissions annually. A major portion of this impact stems from the energy-intensive mining of metals required for coin minting.
Moreover, a substantial percentage of 1 cent (80.6%) and 2 cent euro coins (69.3%) issued in Latvia each year do not return to circulation. This suggests that a significant number of these small coins are lost, potentially ending up as environmental pollutants. Coins can harbor pathogens, and copper, a component of these coins, can be toxic to organisms. Adding to the environmental and economic argument, the cost of producing a 1 cent coin actually exceeds its face value, and 2 cent coin production costs are almost equal to their value. Therefore, removing these coins could significantly reduce environmental impact, lower production costs, and contribute to a more sustainable financial system.
Conclusion: Awaiting the Future of Small Change
The momentum for streamlining euro coin denominations, particularly concerning the 2 cent euro and 1 cent euro coins, is building. While public support grows and potential benefits are clear, practical implementation challenges remain, especially concerning business adaptation. As discussions continue and solutions are sought, the coming months will be crucial in determining the future of small change and cash payments in Latvia and potentially across the Baltic states, which are also considering similar changes. The move towards rounding cash payments represents a potential step towards greater efficiency, convenience, and a reduced environmental footprint in the realm of everyday transactions.
