Central Bank to cease issuance of one cent coin this month
NASSAU, BAHAMAS- Just roughly one third of retailers and banks regularly receive one cent coins in the course of their business, the Central Bank has found, with 61 per cent of businesses estimating that the cost of handling one cent coins is equal or higher than its face value.
The regulator yesterday posted a reminder on its website noting that this month it will cease the issuance of the one cent coin and begin a process of removing the coin from circulation.
The Central Bank, revealing the findings of a coin decommissioning survey, stated: “There are clear signs that the 1-cent coin is used increasingly rarely by the general public as a means of payment.
“According to the Central Bank’s surveys, only about half of the population (52 percent) regularly uses the 1-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.
The bank continued: “Over three quarters (78 percent) of the consumers never or rarely return accumulated 1-cent coins to the banks or post offices. Only about a third (39 percent) of the retailers and the banks regularly receive 1-cent coins in the course of their business. There is a clear concern over the cost of handling 1-cent coins; a significant majority (61 percent) of businesses estimates it to be equal or higher than the face value of the coin.”
Decommissioning as legal tender will occur on December 31st 2020.
The regulator also noted that for the remainder of 2020, it will embark upon a programme to redeem supplies of the one cent coin in active circulation. A further 6-month window is authorised, during which the public will still be able to redeem the coins but not spend them.
As to the rationale for the decommissioning of the one cent coin the bank noted that in over 50 years of circulation, the one cent coin has lost around 90 per cent 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,” said the regulator.
“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 denomination.”
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. Making coins consumes a substantial quantity of metal, and their weight makes handling and logistical services costly. Each 1-cent coin weighs 1.7 grams, therefore the total weight of the 1-cent coins in circulation is around 1,100 tonnes,” said the bank.
It stated: “Each year, approximately 75 tonnes of new coins are added. Withdrawing the 1-cent coin would lead to one-off costs for information campaigns, transports, recycling of withdrawn coins and changes to coin machines and tills, etc.
“It is expected that at least 215 million one cent coins will be gathered in and recycled during the withdrawal campaign. The Central Bank’s costs for withdrawing and repaying the value of the 1-cent coin are in this case calculated at $2–43 million.
“The one-off costs will be offset by the estimated annual savings to the economy of $800,000– $1,000,000, comprising of the costs of issuing new 1-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 1-cent coin are expected to exceed $7 million.”
When the one cent coin is eliminated, the 5-cent coin will be the lowest denomination issued.
According to the Central Bank, electronic payments made, for instance, by debit and credit cards, will not be affected by this initiative.
However, cash payments will be rounded off to the nearest five cents.
As to the rounding rules, the Central Bank advised: “Where a total bill is being paid in cash and the number of cents to be paid does not end in zero or five, thus requiring either the customer to use 1-cent coins in payment or the retailer to use such coins in giving change, the amount of change to be paid will be rounded to the nearest 5 or 10 cents:
• 1 and 2 would be rounded down to zero (e.g. $4.21 becomes $4.20).
• 3 and 4 would be rounded up to 5 (e.g. $7.23 becomes $7.25).
• 6 and 7 would be rounded down to 5 (e.g. $15.67 becomes $15.65).
• 8 and 9 would be rounded up to 10 (e.g. $27.89 becomes $27.90).
“It is important to note that rounding only takes place on the total bill, not on individual prices. As such, prices should not be changed in advance and existing price points (such as with items priced at 99 cents) should remain.
“The amount of VAT (Value Added Tax) paid is unaffected by rounding. VAT is calculated on the amount charged for taxable supplies. 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 5 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 $3.00 in cash and $20.39 by card,” said the Central Bank.
It added: “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.
“Service fees connected with bank transactions and the proceeds of cheques cashed at the counter should be rounded in accordance with the established rules.”