Small Change, Big Annoyance in Europe


By Rachel Tiplady It's lunchtime in Paris and the natives are getting restless. As a queue stretches through the sandwich shop Aux Pains Perdus, just off the Champs Elys?s, manager Guillaume D'Arc waits patiently for a customer to fish out the exact change. "If France didn't have the tiny 1- and 2-euro coins this would be much shorter," he sighs, waving toward the growing crowd. "As well as fewer queues, I'd be able to tally my cash register quicker at the end of the day. I spend so much time counting the small coins, it ends up costing me money."

Less than three years after the introduction of the European Union's single currency in 12 member states, comments like D'Arc's are casting some doubt on the future of the euro's smallest denominations. The debate is just beginning in France, but several smaller European countries have already ditched the tiny copper-colored coins.

MONEY LOSERS.?Finland was the first to act. Before the euro was launched in January, 2002, it passed a law that forced businesses to round prices up or down to the nearest five cents for all cash payments, and not give change with anything smaller than 5-cent coins. The aim was to remove as many of the 1- and 2-cent pieces from circulation as possible. On Sept. 1, retailers in the Netherlands launched a nationwide operation to round prices in the same way as the Finns. Consumer associations and commercial banks back the move.

Most recently, Belgium's Finance Minister Didier Reynders pledged to stop production of 1- and 2-cent coins in 2005. Belgium has yet to make any decision on pricing, however. A roundtable of consumer, banking, and retail associations is now debating the issue.

It seems like a big fuss over a lot of small coppers (21 billion to be precise). But the 1- and 2-cent pieces -- worth 1.2¢ and 2.4¢ respectively -- are more of a burden than a boon for businesses. The national mints, which sell the coins to the central banks at face value, lose money producing the smaller cent pieces, particularly in the face of today's rising metal prices. The mints make a profit only on higher coin denominations -- from the 5-cent piece, through the 10-, 20-, and 50-, and up to the 1- and 2-euro coins.

NO AUTHORITY. Commercial banks and retailers would save a lot of time and money by no longer collecting and processing the littlest coppers. The Dutch Central Bank (De Nederlandsche Bank) calculates that businesses in the Netherlands will economize $36 million a year in processing costs when the small coins are phased out. And when the European Union polled consumers at the end of last year in the 12 member states that use the euro, 61% said they were in favor of scrapping the 1-cent coins, and 55% wanted to see bid farewell to the 2-cent piece.

"Getting rid of the coins makes sense for everyone in the economic food chain," says Dominique Barbet, senior economist at French bank BNP Paribas.

The European Central Bank has no authority on the matter. While it's responsible for setting the common currency, it can't dictate how each country uses the coins. That's up to each country's Finance Minister, who orders the national mint to produce whatever number it deems appropriate for each denomination. However, each euro country will always have to accept the small coins as legal tender. Retailers in the Netherlands and Finland must accept the 1- and 2-cent pieces on the rare occasions that foreigners use them, but shopkeepers won't give the coins as change.

CASH ONLY. For the moment, fears of inflation are stopping the larger European countries from taking the plunge. "Germany will probably keep the coins because we would lose what we call shop signal prices, like 1.99 [euros], which looks far more attractive to shoppers than 2.00 [euros]," explains Wolfgang Söffner, head of the cash division at Germany's Central Bank, the Deutsche Bundesbank.

Retailers in the Netherlands solved that problem by keeping individual ticket prices the same and rounding only the final shopping bill to the nearest five cents. Plus, the system applies only to cash transactions -- all credit-card and check payments stay at their original amount. "That way, they should avoid any risk of inflation," says Barbet.

But some say Germany's die-hard attachment to small coins is unbreakable. Before the introduction of the common currency, Germans had the 1-pfennig piece, which was worth half a euro cent. No surprise that in last year's EU consumer poll, Germany was the nation most in favor of keeping the 1- and 2-cent pieces. However, Germans seem to be fonder of hoarding the coins than spending them. In June, the Deutsche Bundesbank issued a statement urging consumers to use the tiny coppers because national banks were running out.

"SPREADING THE IDEA." France has more of a history of rejecting small change. In 1979, it stopped producing 1-franc centimes, which were worth less than 0.02 cents. Today, many retailers, particularly those that deal with small change, are hoping the smallest euro coppers meet the same end. "We would be all for it," says Jacques Mabille, president of the association of bread and cake retailers in greater Paris. "No official talks are under way as far as I know, but I'm spreading the idea around."

It's the consumers who will need convincing. To get shoppers in the Netherlands on board, officials ran a pilot price-rounding scheme in the town of Woerden earlier this year. It proved extremely popular and was adopted nationwide. Today, one aim of the Dutch rounding initiative is for any savings made by shop owners to be passed on to the consumer in the form of cheaper goods.

Gallic consumers, along with their Italian counterparts, seem very open to ditching the small coins. According to the EU poll, 74% of the French public questioned and 73% of Italians would be in favor of abandoning the 1-cent, and more than 60% would like to see the 2-cent meet the same fate in both countries."But if Germany is to do anything, the impetus has to come from the consumer, and for the moment, this doesn't look likely," says Deutsche Bundesbank's Söffner.

So now it's up to Europe's smaller countries to put in their two cents and hope they can convince the others that getting rid of small change would be a big -- and positive -- change. Tiplady is a reporter in BusinessWeek's Paris bureau


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