Cumulative savings could exceed $7 million over ten years
NASSAU, BAHAMAS — The elimination of the Bahamian one cent coin could result in savings exceeding $7 million over ten years, according to the Central Bank, which is proposing that the coin cease to be legal tender effective December 31, 2020.
If the one cent coin is eliminated, the five cent coin will be the lowest denomination issued.
“Electronic payments made, for instance, by debit and credit cards, will not be affected by this initiative,” the Central Bank has stated. “However, cash payments will be rounded off to the nearest five cents.”
In 2018, the Central Bank of The Bahamas, with the assistance of consultants Secura Monde International, commissioned a study to examine the need for continued issuance of the one cent coin.
According to the regulator, its purchase and distribution cost for the one cent coin is $1.04 cents, which was equal to around BSD $443,000 in 2017.
“Additionally, there are logistical and processing costs to the commercial banks and the retail trade,” the bank said. “Making coins consumes a substantial quantity of metal, and their weight makes handling and logistical services costly. Each one cent coin weighs 1.7 grams, therefore the total weight of the one cent coins in circulation is around 1,100 tonnes. Each year, approximately 75 tonnes of new coins are added. Withdrawing the one cent coin would lead to one-off costs for information campaigns, transports, recycling of withdrawn coins and changes to coin machines and tills, etc.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 bank has calculated its costs for withdrawing and repaying the value of the one cent coin at BSD $2–$3 million.
“The one-off costs will be offset by the estimated annual savings to the economy of BSD $800,000– $1,000,000, comprising of the costs of issuing new one cent coins into circulation and handling them in the retail and banking transactions,” the Central Bank said. “Over the next ten years, the cumulative savings resulting from the elimination of the one cent coin are expected to exceed BSD $7 million.”
The Central Bank noted that many countries have withdrawn low denomination coins that are no longer useful or cost-effective to maintain, including Australia, Brazil, Canada, Denmark, Ireland, Norway, Sweden, South Africa, and Trinidad and Tobago.
“Countries that have implemented a low denomination coin withdrawal universally assessed as unlikely that consumer prices will change to such an extent that it has an impact on the inflation. The competition in the retail sector typically restrains price increases. The overall impact on the cost of living and on retailers’ sales and profitability from the low denomination coin withdrawal is generally very small,” the Central Bank noted.
As to rounding rules, the Central Bank has noted that 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 one 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 five or ten 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).
The regulator noted 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 Central Bank stated. “The amount of value-Added tax (VAT) 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.”