Expensive coins
May 19, 2013
As the euro crisis goes on, the voices calling for the currency's abolition are getting louder. One of them belongs to the new party "Alternative for Germany," who can't wait to get rid of the euro altogether.
Olli Rehn, the European Union's Economic Commissioner, is currently examining a proposal that would at least partially scrap the euro. That is, not the currency itself, but its two smallest coins - the one- and two-cent coins. The European Parliament and the European Council are both calling for the move. Rehn's conclusion after initial consultations with various business and politics representatives is that making the low value coins represents a losing proposition.
More expensive than face value
The production of these coins, whose inside is made of iron and whose outside is copper, is more expensive than their face value. On top of that, there are the considerable costs when the coins have to be distributed to retailers. The European Commission has reported that the difference between the production costs and the face value of the single currency's coins since their introduction has already grown to more than 1.4 billion euros ($1.8 billion).
Finlandand the Netherlands have taken steps to make do without the two smallest denominations - all prices are rounded to five cents, and so the little coins are practically no longer in circulation. But that's an unthinkable scenario for Germany, says Stefan Hertel, press spokesman for the German trade association (HDE): "There are relevant surveys, including from the German Central Bank, that show that a huge majority of consumers like the one- and two-cent coins and want to keep them."
Retailers also want to keep the coins, if only for the psychological reason that for years prices have been set with a "99" after the decimal point - and rightly so, says Hertel.
Frustration from retailers
In Germany, the central bank is responsible for distributing coins to retailers. Since 2002, the bank has been narrowing its branch network to save money, which is inconvenient for businesses who want to pick up their cash personally. Carl-Ludwig Thiele, the board member responsible for cash supply, defends this arrangement. "As a central bank, we don't have to operate these branches everywhere," he told DW. After all, he argued, the bank itself has to function in an economically viable way, and scaling down does not affect the end user.
But there has been plenty of criticism of the central bank's cost-cutting from retailers. "We have warned about and called attention to the fact that we have to travel further," said Hertel. On top of this, retailers also criticize another Bundesbank measure that makes acquiring cash more expensive - in 2011, the bank reacted to the enormous transport costs of the coins by only using standardized containers.
These containers carry 314,000 euros' worth of coins each. There are eight standard containers for each coin. The standard containers for small coins contain 2,500 euros in one-cent coins and 4,000 euros in two-cent coins. That presents a problem for many small retailers, because they have to pay a fee for any smaller orders.
Remaining in circulation
Hertel admits that getting rid of the one- and two-cent coins would help. "Scrapping them would have a cost benefit, because we have to keep the rolls in reserve as change. That costs money. We would save that." Thiele, meanwhile, defends the standardized containers, saying, "I don't know any kiosk owner who takes a standard container which has to contain all the coins in all denominations, with a weight of 650 kilos."
Regardless of how much the distribution of cash costs, the central bank has no plans to actually take the smaller coins out of circulation as long as the majority of Germans are against it. So if Rehn does not come to the conclusion that the euro coin must be partially scrapped, there will still be plenty of copper to fill German wallets.