The penny: Change we can't believe in?
Canada's done it, Australia's done it; Russia and the US are thinking of doing it. Is it time for Britain to follow suit and abolish its smallest coin? Tom Bawden adds his penny's worth to a growing debate
If they're not weighing down your pockets or cluttering up your purse, chances are they're stuck in your vacuum cleaner or gathering in jam jars on a shelf. But do those irritating 1p pieces deserve a place in modern British life at all?
Last month, Canada announced it was scrapping its penny. Since then, a long-standing campaign to abolish the US penny – the 1 cent coin – has developed new momentum; and in Russia, too, the central bank is reported to have been pushing for the 1 kopek piece to be removed from circulation. Now a few brave voices are suggesting that our own smallest coin should be put out of its misery – just 41 years after coming into the world in its present, decimal form.
Research suggests that a quarter of Britons would happily get rid of copper coins – while a similar proportion admit to simply hoarding them in jars, sofa-backs and unwieldy piles.
The lower echelons of coin society are particularly scorned by younger people, with 33 per cent admitting to actually binning their small change, according to a survey for the Prudential insurance group. By contrast, only 2 per cent of 55-to-64-year-olds would dream of such as thing.
This may be because, when they were younger, the penny was actually worth something. These days, a 1p coin is worth less than one-twelfth of what it was worth at its birth in 1971. (Or, to put it another way, it used to be worth 12p.) It therefore seems reasonable to ask what, if anything, it is really good for?
The Federation of Small Businesses (FSB), which represents 200,000 companies up and down Britain, including shops, is one organisation that suspects the penny might have had its day. "Getting rid of the penny might have a positive impact on smaller firms that deal with large numbers of coins. Not only would it mean they wouldn't have to go to their local bank, many of which are now closing, to get change, but also that they wouldn't have to hold lots of cash on the premises," says Priyen Patel, of the FSB.
David Buik, a respected commentator for BGC Partners, the City stockbroker, added: "After losing several hundred per cent of its value in the last two to three decades, the penny seems like a complete waste of time and space".
Mr Buik sounds uncannily like Canadian finance minister Jim Flaherty announcing the death of his nation's penny. "The penny is a currency without any currency. And they take up too much space on our dressers at home. We often store them in jars, throw them away in water fountains or refuse them as change," he said.
"Financial institutions face increasing costs for handling, storing and transporting pennies. Over time, the penny's burden to the economy has grown relative to its value as a means of payment," Mr Flaherty added.
In an editorial earlier this month, that bastion of tradition, the Chicago Tribune, called for the US to follow its neighbour. "They weigh down your pockets. Retailers hate counting them. As a unit of value, they're practically worthless. Why, oh why, can't America bring itself to eliminate its pennies?" the paper said.
But scratch beneath the surface of public disdain for the penny in the UK and, despite the willingness of many to lash out at the coin, there are some staunch defenders offering a host of economic, pragmatic, charitable and nostalgic defences.
Scratch beneath the copper surface of the penny itself, on the other hand, and the chances are you'll hit steel, since the copper, zinc and tin amalgam that made up the original bronze model was replaced in 1992 with cheaper ingredients – copper-plated steel.
For Phil Mussell, director of industry bible Coin News, changing the penny's ingredients has been key to its survival. "The change means that the penny is costing nowhere near a penny to produce. If it was costing more to produce than it was worth, as it does in Canada, then it could be a different story," he said.
A Canadian cent – referred to as a penny and worth 0.63p in British money – costs 1.6 cents to produce and requires an annual taxpayer subsidy of $11m Canadian dollars (£6.9m). By contrast, although the Royal Mint does not disclose its cost, Mr Mussell has calculated that the British penny costs less than 0.3p to produce.
Mr Mussell also gives short shrift to the argument that the penny should be abolished merely because of Royal Mint calculations that about 6.5 billion of the coins made since 1971 – worth £65m – are no longer in circulation, having been lost or stashed away somewhere.
"If you don't want the pennies, give them to charity. Most shops or garages have a collection box, so don't be so bloody tight," he said. "If you went to the man in the street and said do you want a pocket full of change, he'll say no. People don't like to be inconvenienced. But they would miss it if it's gone," he said.
Mr Mussell added: "As a coin expert, I say don't abolish the penny, because it would be a great shame to get rid of all that history. It is the unit around which our whole currency is built."
Katie Eagleton, curator of modern money at the British Museum, points out that there is still a demand for pennies, with 514 million of them being produced last year alone as banks placed orders with the Royal Mint. Last year's mintings mean there are now 11.2 billion pennies in circulation.
"People still quite like cash. It's something tangible that people like using, and it will be a long time before it becomes common for small transactions to be done digitally. Research has shown that most transactions below £10 are still done in cash," said Ms Eagleton.
Ms Eagleton also wonders whether hard cash is becoming more popular as the recession deepens. "It's a bit easier to budget if you take out money at the start of the week and just spend that," she said. But the biggest argument for keeping the penny is – perhaps fittingly – financial. Asked whether the ditching of the penny would encourage retailers and service providers to round up, rather than down, Mr Mussell is characteristically blunt. "Oh God, yes. Without a shadow of a doubt. Whether it's decimalisation or the switch to the euro, prices always go through the roof in these situations and inflation goes up," he said.
"I don't think the penny is going anywhere soon, for the simple reason that it would have a measured effect on inflation," says Mr Buik. "With inflation already high and with the state of the economy being what it is, a year of additional inflationary pressure would really put a squeeze on the cost of living," Mr Buik added.
On the economic plus side, the Government could theoretically use the abolition of the penny for an unorthodox, bottom-up form of "quantitative easing", buying back defunct pennies at a premium in a bid to stimulate the economy. This is the kind of measure Kyle Bass, a hedge fund manager from Dallas, can only dream about. Mr Bass is famous for buying 20 million US nickels on the basis that each of these 5 cent coins contained 6.8 cents' worth of its copper-nickel alloy ingredient.
Whether the penny can ultimately survive will be determined by the Treasury. As Ms Eagleton points out, "it takes quite a few years of people asking" before a coin is dropped – citing the abolition of the farthing in 1961 and that of the half penny in 1984.
Dropping these coins has set a precedent for ditching small denominations in the UK, while other countries have been killing them for years, with Sweden a serial offender. The country kicked off its spree by removing its one-ore and two-ore coins in 1971 and, by 1992, it had also removed its five, 10 and 25 ore coins. In 2009, it scrapped the 50-ore piece. Brazil, Finland, Israel, the Netherlands, New Zealand, Norway and Switzerland have also dropped low-denomination coins in the past decade.
With the momentum against the penny having been building in the UK for a number of years, the writing is on the wall. A Treasury spokeswoman promises that "the opinion of the general public will be carefully considered" before it is scrapped. At some point, however, the penny will be dropped. It's just a question of when.
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