Ever wondered whether there’s a point to having small change?
Well, you’re not alone.
Many governments around the world have asked that very question:
Should pennies, the smallest-value coins in circulation, be scrapped?
The value of small change is being debated around the globe.
Australia phased out one and two cent coins in the 1990s,
while Canada stopped producing copper coins in 2013.
In the Eurozone, where one and two cent coins are still produced, countries like Ireland
are voluntarily rounding prices to the nearest five cents to avoid using smaller change.
And even those coins seem quite valuable when compared to currency like Uzbekistan’s Tiyin.
You would need 8,000 of them to buy just one American penny.
Here in the U.K., you can still find plenty of pennies in circulation.
To understand why, let’s look back at its long history.
The word “penny” originally meant any sort of coin or money, not just a small denomination.
The first English pennies were adopted by Anglo-Saxon kingdoms
in the 8th century and were made entirely of silver.
That original English penny was worth a lot more than today’s penny.
That comes down to two main factors: debasement and inflation.
Debasement is when a monarch or government lowers the value of currency
by changing the makeup of a physical coin.
Early coins were made of valuable metals like gold and silver.
But as rulers needed more money to pay for things like expensive wars,
they began to add cheaper metals into the mix.
That made the coins worth less, meaning people needed more of them to buy things.
The average price of goods and services has also gone up over time.
This is known as inflation.
In 2016, the Royal Mint revealed there are 11.3 billion pennies in circulation.
But sixty percent of 1 and 2p coins are only used once,
lost to piggy banks, sofas, sock drawers, even the garbage bin.
Eight percent of pennies are thrown away.
This means the Royal Mint has to produce even more pennies to replace
the ones that have gone out of circulation - about 550 million a year.
However, by law, vendors don’t have to accept 1 penny coins
as a form of payment for anything over 20p.
So this cafe doesn’t have to accept these pennies if I want to buy a coffee.
Which means there isn’t much out there that you can buy with 1 penny coins,
apart from some sweets of course.
The Royal Mint won’t reveal how much it costs to make a penny,
nor how much the U.K. would save by stopping production.
But it did say that it costs less than 1p to make 1p.
That’s more than the Americans can say about their penny.
While the cost has decreased over the years,
it still cost 1.8 cents to produce one U.S. penny in 2017.
The cost of a penny largely comes down to the metals in it - and those prices can fluctuate.
While the U.S. penny was mostly made of copper for more than 150 years, rising copper prices
forced the U.S. Mint to dramatically reduce the amount of copper used in the coin.
Now a penny is primarily made up of zinc and is only 2.5% copper.
Though ironically now zinc prices are rising too.
The British penny is made of steel, coated in copper.
Steel prices have also increased over the years,
which helps explain why Canada ceased minting its copper coated steel penny back in 2012.
For all this effort, the demand for small change is in decline.
One study found that Americans throw away $62 million in coins each year,
while in Britain, 68% of people don’t bother to carry or spend copper coins anymore.
One reason for this is the rise in cashless payments.
The number of non-cash transactions are projected to hit more than 875 billion by 2021.
But don’t sign cash’s death certificate yet.
It’s still the most frequent form of payment in the United States,
representing 30 percent of consumer transactions.
In the U.K., cash accounts for 34% of all payments, second only to debit cards.
And globally, 1.7 billion people don’t have access to a bank or similar financial institution.
So cash is still widely used, but small change isn’t.
If that’s the case, why do we keep it?
Is the penny worth more to the economy than we think?
Some experts believe that prices ending in 99 are a time-honored sales technique that helps businesses.
For example, researchers found that sales of a pizza increased by 15%
after its price was lowered from €8.00 to €7.99.
But pennies can also have a negative effect on businesses and the economy.
The U.S. National Association of Convenience Stores calculated that handling
pennies adds 2 to 2.5 seconds to each cash transaction.
That could cost the economy $10 billion in wasted time every year.
And some have argued that charities and their beneficiaries may also lose out.
The penny’s value - or lack thereof - makes small change useful to charities
because people are more open to parting ways with it.
Loose change donations to charities in the U.K. alone are worth $396 million a year.
As countries like the U.K. and U.S. continue to mint small change, it may only be a matter of time
before the penny drops and they follow other major nations in retiring copper coins forever.
Hi guys, thanks for watching our video. We hope you enjoyed it.
We'd love to know your thoughts on small change and pennies in particular.
Do you still use them? Comment below the video to let us know.
And remember, don't forget to subscribe.