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One-cent coin use to cease by end-2020

Central Bank of the Bahamas.

Central Bank of the Bahamas.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday said its plan to end the Bahamian one-cent coin's use as legal tender by end-2020 will save itself and the banking system $7m over a ten-year period.

The regulator, unveiling its rationale for ending the coin's 54-year history as a means of payment, said it had lost 90 percent of its purchasing power and was "increasingly rarely used" in commercial transactions by the Bahamian public.

With a survey showing that just 52 percent of persons use the one-cent coin to pay for goods and services, and the use of electronic payment methods such as debit cards and wire transfers becoming increasingly popular, the Central Bank argued the costs of maintaining it as legal tender outweigh the benefits.

With businesses and banks incurring handling and processing costs greater than the one-cent coin's value, the banking industry regulator is estimating that its withdrawal as legal tender will result in annual cost savings of between $800,000 to $1m.

Recalling the coin's introduction in 1966, the Central Bank said: "In over 50 years of circulation, the one-cent coin has lost around 90 percent of its purchasing power, while the cost of its production and administration grew in line with inflation and now exceeds its face value.

"The current value of these coins is so small that essentially no goods or services can be purchased with them. The only remaining utility of these coins is to give change in larger payment transactions.

"Once the coins are given to the consumers as change, they are rarely used in subsequent transactions, which leads to large volumes of new coins being issued every year to compensate for poor circulation of this coin denomination."

Drawing on a public survey to buttress its case, the Central Bank said the results showed that the one-cent coin "is used increasingly rarely by the general public as a means of payment".

It added: "According to the Central Bank's surveys, only about half of the population (52 percent ) regularly uses the one-cent coin for making payments. This share is much lower (40 percent) for the younger consumers (age 16-34), likely related to generally lower usage of cash for payments in this age group.

"Over three quarters (78 percent) of the consumers never or rarely return accumulated one-cent coins to the banks or post offices. Only about a third (39 percent) of the retailers and the banks regularly receive one-cent coins in the course of their business.

"There is a clear concern over the cost of handling one-cent coins - a significant majority (61 percent) of businesses estimate it to be equal or higher than the face value of the coin."

The Central Bank's consultation paper acknowledges that the one-cent coin's withdrawal as a means of payment will trigger "one-off costs" associated with the gathering and recycling of an estimated 215m such coins. Public information campaigns will need to be waged, along with changes to coin machines and cash tills.

"The Central Bank's costs for withdrawing and repaying the value of the one-cent coin are in this case calculated at $2-$3m," the Central Bank revealed. "The one-off costs will be offset by the estimated annual savings to the economy $800,000 to $1m, comprising of the costs of issuing new one-cent coins into circulation and handling them in the retail and banking transactions.

"Over the next ten years, the cumulative savings resulting from the elimination of the one-cent coin are expected to exceed $7m."

Emphasising that the move is no different from actions taken by the likes of Canada and Trinidad & Tobago, which have already eliminated low-value coins that are "no longer useful or cost-effective", the Central Bank added that the one-cent coin's withdrawal would have minimal to no impact on inflation, prices and the cost of living, and retailers.

It is proposing to stop issuing one-cent coins by end-January 2020, and end their use as legal tender by end-December 2020. Consumers will be able to redeem their one-cent coins at "to be announced" Central Bank partner locations until end-June 2021.

"The Central Bank's purchase and distribution cost for the one-cent coin is 1.04 cents. This is equivalent to around $443,000 in 2017. Additionally, there are logistical and processing costs to the commercial banks and the retail trade," the Central Bank added.

"Making coins consumes a substantial quantity of metal, and their weight makes handling and logistical services costly. Each one-cent coin weighs 1.7 grams. Therefore the total weight of the one-cent coins in circulation is around 1,100 tonnes. Each year approximately 75 tonnes of new coins are added."

While older consumers may take time to adjust, the Central Bank's proposal to end the one-cent coin's use as legal tender fits with its efforts to modernise the Bahamian payments system and increase the use of electronic methods - rather than cash - to settle commercial transactions.

While electronic payment methods will not be impacted by the one-cent coin's withdrawal as legal tender, the Central Bank has issued "rounding" guidelines for cash payments. When a bill does not end in zero or five cents, those ending in one or two will be rounded to zero; those ending in three, four, six and seven will be rounded to five, and those ending in eight or nine rounded to 10.

The Central Bank added that the rounding should take place on the total bill, with existing price points staying the same, while the amount of VAT levied is also not impacted.

"VAT is calculated on the amount charged for taxable supplies," it explained. "Rounding should take place after the VAT is calculated on a bill, and only when the customer is paying the total amount of an invoice in cash or paying the balance of an invoice in cash.

"If the customer is paying the total bill with cash and card, an amount rounded to the nearest five cents should be paid in cash and the remaining odd amount paid by card. For example, a total bill of $23.39 could be paid with $3 in cash and $20.39 by card."

The Central Bank continued: "Before the rounding becomes effective, retailers should indicate the applicable rules of rounding through appropriate in-store signage. The Central Bank would make such signage available in the form of stickers, posters, etc, for in-store display to any retailer, regardless of size.

"Should some retailers prefer to develop their own signage, the necessary imagery will be made available for download by the Central Bank in advance of the withdrawal date. If larger stores require significant quantities of physical material, they should notify the Central Bank in advance.

"Rounding shall be applied in financial institutions such as banks if the transaction involves a purchase. For example, if someone is paying an electricity bill in cash at the counter, for banking transactions when the amounts are deposited, or making withdrawals in cash at banks and post offices."

Comments

Well_mudda_take_sic 2 years, 11 months ago

Just a consequence of the declining purchasing power of fiat currency as evidenced by the real rate of inflation always being much higher than the Central Bank's published rate of inflation.

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Clamshell 2 years, 11 months ago

If somebody says, “A penny for your thoughts,” should we round that up or down? And I’m not talkin’ TalRussell’s thoughts ...

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sealice 2 years, 11 months ago

(age 16-34), likely related to generally lower usage of cash for payments in this age group.

THIS IS A CROCK - THE REASON THEY AREN'T SPENDING THE FLUCKING PENNIES IS BECAUSE THEY DON'T HAVE PENNIES TOO SPEND!!!!! MORE GOVERNMENT BS . THIS ISN'T ACTUAL WORK CAN YOU PLEASE DO SOMETHING WITH MEANING FOR THE PEOPLE???

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truetruebahamian 2 years, 11 months ago

They should be called 'Cennies' as they are cents - not pence (thus pennies). However, these differences - it appears will be moot by the end of next year. I remember when the U.K. went decimal, a friend bought boxes and boxes of farthings, Ha'pennies and pennies, also all of the larger denominations. He has done well by selling them to collectors remembering that time and interested younger generations who enjoy tangible history.

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Clamshell 2 years, 11 months ago

They are called pennies in the U.S., which has never had a pence coin.

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truetruebahamian 2 years, 11 months ago

I suppose that it will be near impossible for those under pressure to 'Spend A Penny' after this!

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hnhanna 2 years, 11 months ago

The Central Bank of the Bahamas needs to explain the ramification for consumers when they do away the one-cent coin. Do this mean the price of goods going to be an increase or decrease to the nearest 5 cent

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Clamshell 2 years, 11 months ago

Try reading the story. It’s explained there:

“ ... The Central Bank has issued "rounding" guidelines for cash payments. When a bill does not end in zero or five cents, those ending in one or two will be rounded to zero; those ending in three, four, six and seven will be rounded to five, and those ending in eight or nine rounded to 10.”

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banker 2 years, 11 months ago

Canada has been without a penny for years.

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