Published: 28.09.2023
Zita Zariņa
Zita Zariņa
Member of the Council, Latvijas Banka

The survey conducted by SIA Latvijas Fakti in August 2023 suggests that public support for the idea of withdrawing 1 and 2 cent coins from circulation has grown. Almost half – 49% – of the surveyed expressed support for reducing the share of small change, while 46% of the population believed the smallest denomination coins were necessary. Half a year ago, in the survey of February 2023, 41% of the surveyed supported the withdrawal of 1 and 2 cent coins from circulation, but 50% expressed the view that these coins should be retained in circulation.


Latvijas Banka has been measuring public mood in this matter since 2016, when the withdrawal of small denomination coins from circulation was backed by 26% – half the current share.

Let me remind you of the heart of the idea – giving up 1 and 2 cent coins would mean the introduction of the rounding rules, i.e. the rounding of the total amount of the purchase, instead of the price. For instance, if the total amount of the purchase were 12.23 euro, the actual amount payable in cash at the cash register would be 12.25 euro. Meanwhile, if the shopping cart contained items worth 12.22 euro, the customer would pay 12.20 euro at the cash register. The experience of other countries suggests that such practice does not affect inflation rates since, in the daily cash transactions, part of the amount is rounded up, while another part is rounded down.

Over time, public support for reviewing the structure of euro coin denomination has risen and there have been active discussions with the institutions and businesses involved in cash circulation explaining this idea and searching for the best solutions for Latvia, its population and businesses.

Latvijas Banka has developed the draft Law on rounding the total amount of the cash payment. Currently, discussions are held with the Ministry of Finance and the State Revenue Service, with their focus on practically implementing the rounding of the total amount of a cash purchase (and not the price of individual items!).

Challenges

The greatest challenge involves adapting the cash registers and cash register systems to reflect the rounding of the total amount of the purchase in the receipt. Merchants should not only implement the changes in the systems, but also certify them in accordance with the current laws and regulations. This would significantly affect costs and increase the implementation time. Currently, Latvijas Banka, in cooperation with the Ministry of Finance, is looking for the most business-friendly solution to this problem.

Benefits

The benefits of limiting the circulation of small denomination coins have been discussed often – more convenience for the public and an easier job for cashiers, savings for those involved in the provision of cash circulation, the protection of natural resources and other factors. It will soon become clear how this initiative will be introduced and how it will ease the daily lives of people and businesses. The other Baltic States are also discussing similar changes in the circulation of small change.

So far, one benefit – that to the environment – has received less attention. The European Union and also Latvia have pledged to reach climate neutrality no later than by 2050. To accomplish this, all areas need to transition to solutions facilitating greenhouse gas emission reduction.

Studies suggest that coin production, transport, distribution, use and recycling globally produce 2.1 MtCO2eq greenhouse gas emissions per year, thus contributing to climate change. The most substantial impact on climate is related to the mining of metals needed for coin production.

The use of coins is also related to environmental and economic sustainability. Every year, 80.6% of the issued 1 cent coins and 69.3% of the issued 2 cent coins do not return to circulation in Latvia. This could indicate that part of the coins are lost and may pollute the environment with pathogens found on coins and copper which is potentially toxic to living organisms. It should be noted that minting a 1 cent coin costs more than the actual denomination of this coin, while the production costs of 2 cent coins are practically equal to their denomination. Withdrawing coins from circulation would allow us to limit the impact on climate and the environment as well as reduce the related processing and production costs.

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