It’s time to ditch the penny

Check the sofa.
Check the sofa.
Image: Reuters/Rebecca Naden
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If you see a penny on the floor, do you even bother to pick it up?

Low-denomination coins are increasingly useless and costly to produce. According to staff at the Bank of England, the economic reason for keeping them—fear of inflation—has been thoroughly debunked.

Removing one- and two-pence coins from circulation would have “no significant impact” on prices, the UK central bank said in a blog post Wednesday. That’s because rounding up would be applied to a total bill, not individual items, and it would also only affect cash transactions, which are becoming less popular. Last year in the UK, electronic debit card payments outnumbered those with physical money for the first time. Contactless payment cards mean that even low-value payments increasingly don’t need to be paid in cash.

Already, production of 1p and 2p coins is falling in the UK and a recent consultation by the Treasury found that 60% of these coins are used just once before they drop out of circulation.

Most of the arguments for keeping the penny relate to the fact that many items are priced with amounts ending in .99. But even this is changing. The proportion of total pricing ending in .99 is just over 12% and has been falling for the past three years, the BOE notes.

Even if retailers responded to the removal of 1p and 2p coins by changing prices on individual items instead of the final bill, the BOE still doesn’t see this causing inflation. (Bear in mind, roughly 70% of prices in the UK already end in a zero or 5.) Using the data the Official for National Statistics uses to calculate inflation, BOE staffers ran three scenarios for how retailers might go about this: They could either round each price to the nearest 5p, round all prices down to nearest 5p or round them all up the nearest 5p. The first would result in a 0.03 percentage-point increase to inflation, the second a 0.15 percentage-point decrease, and the third a 0.07 percentage-point increase. In all scenarios, it’s a small impact that, even if it were to happen, would be a one-off price shock rather than a persistent acceleration of inflation.

There’s precedent here: In 1984, the UK abolished the halfpenny. The BOE says the concerns about inflation were unfounded then and remain so today. After years of debate, it might be time to take the next step.