Although the European Commission continues to study the abolition of the 1 and 2 cent coins in Portugal, the net issuance of these denominations has not stopped growing. On the other hand, the latest population survey concluded that six out of ten Portuguese are in favor of their exclusion from the monetary system.
Of the 3.8 billion coins in circulation in the country at the end of last year, 1.9 billion were 1 and 2 cent coins, or more than half of the total. This figure is five times higher than in 2002, when such coins accounted for 37% of the current currency, according to information from the Bank of Portugal (BdP).
According to the banking regulator, responsible for the physical issuance of the money, the need to eliminate these coins stems from the fact that the smallest denominations “are a burden on the issuing entities”, as the production costs exceed their face value, and that “central banks, commercial banks, retailers and other market participants incur significant handling, distribution, collection and processing costs”.
To understand the losses generated by this activity, Dinheiro Vivo contacted the Imprensa Nacional Casa da Moeda, only to receive a response that “production costs are confidential information”, which is “under commercial protection”. The Directorate-General for Finance and Finance also declined to comment on the matter.
However, the cost assessment “may result in proposals for legislative initiatives with common rounding rules” for the whole euro area, the BdP notes. In fact, some member states have already “adopted rules to round up or down the total amount of the payment to the nearest multiple of five cents, with the aim of significantly limiting the circulation of these denominations”.
At the end of last year, the European Commission consulted the Portuguese and found that 57% are in favor of abolishing the 1 and 2 cent coins and the consequent application of mandatory rounding in trade. The results of the December Eurobarometer also showed that the support rate of the measure is 64%, taking into account the number of citizens surveyed (17,817) in the euro area.
Experts for elimination
The opinion among specialists is unanimous: withdrawing the 1 and 2 cent coins from circulation could not be more logical, since the high cost of production does not offset their face value, nor does the benefit of using them in an era of ever-increasing payments more digitized.
Paulo Rosa, economist at Banco Carregosa, believes that “sooner or later its elimination must be inevitable” and points out that the high inflation of the past year, combined with the rise in the cost of the raw materials used in the production of these coins has further accelerated the cost of keeping them in circulation. However, he points out, “while 1 cent buys nothing, its existence could, at least psychologically, anchor prices at lower levels”.
While the bank’s specialist doesn’t expect the measure to make pricing of goods and services more difficult or push up inflation, Filipe Garcia, president and economist at Financial Markets Information (IMF), warns that the biggest immediate risk is precisely the rise of the prices, since “selling prices are not rounded down” – “but we will always talk about small values”, he notes.
Those who could benefit from this rule, says Henrique Tomé, an analyst at XTB, are small businesses, “that can continue to use psychological prices like 98 cents and earn from rounding,” based on the principle that uncertain prices persist. paid through digital channels, but not in cash. In this sense, the impact will be greater in percentage terms on small retailers, where physical money is still widely used, than on large areas, where card payments are already well established.
Regarding the possible effects of abolishing the denominations of 1 and 2 cents, the BdP notes that “the public fears an increase in inflation if these coins disappear, but treats them as worthless pieces, which is why they are often preserved, forgotten or even destroyed”. Paulo Rosa adds and gives as an example that consumers often pay with a 5 euro note for a product that costs 4.99 euro and do not change it.
Economists assure that, if it takes effect, the impact of the measure will be globally neutral and the impact on the Portuguese economy will be “irrelevant”. On the other hand, it could further accelerate the transition to electronic payments.
Source: DN
