In a decimalised economy like the UK, one pence coins are often regarded as useless, and rarely spent on goods. Instead, they are given as change for products. In the 1950s, these pennies were important on a daily basis, providing the means for transactions such as buying milk and eggs, which roughly cost 3p and 8p respectively. This utility has been lost today due to inflation, and now the introduction of contactless payment. In addition, the production of these coins cost governments more than they are actually worth; in 2014, it cost the USA Mint 1.66 cents to produce each cent. This figure is similar for other countries such as Canada and France. We all know how little people care about pennies as they are not even worth the time to pick them up, and instead left on pavements or lost behind car seats. Another 8% of pennies are thrown in the bin every year in the UK. This stagnant money represents millions of pounds and could be put to better use. Some countries such as Canada or Belgium have already permanently stopped the production of pennies, with positive results. Despite the sentimental reluctance to remove the penny due to its link to traditional British values, the penny has lost its role in modern economies and countries should start phasing them out as it would have greater economic benefits.
Penny coins in many countries provide a source of donations for charities, with annual events and bucket collections used as key strategies to raise money. Citizens often donate through the means of spare change, which together raises millions for UK charities every year, according to the Charity Finance Group. Many charities fear that the potential removal of these pennies would greatly reduce funds, especially for smaller charities that rely on bucket collections and spontaneous distributions.
However, bucket collections could still continue despite the complete halt in production of pennies. At first, the pennies would still be donated, but as they are phased out, the donations would be replaced by smaller volumes of coins with higher values such as 5p or 10p coins. This would help secure a considerable amount of money raised through collections. Furthermore, the money saved by stopping the production of pennies can also be redirected to return to charities through government funding. In Canada, who stopped using pennies in 2012, the halt in production has saved around $11 million pounds every year. This increase in the government’s has consequently increase government funding for charities, which compensates for the feared financial loss.
The main issue with pennies is the opportunity cost associated with producing them. In the UK, it is estimated that 60% of pennies are only used in one transaction, usually given as change from shops and then discarded by consumers. This is due to the penny’s role as part of a pricing strategy to lure consumers, where prices are labelled as 99p instead of £1. Due to this pricing mechanism, consumers never have to pay in single pennies, but are much more likely to receive pennies as change. According to the Royal Mint, there are just under 11,430 million pennies in circulation, representing £114.29 million, and 6,714 million 2p coins, worth £134.273 million. The 60% of pennies that are only used once are worth together £149.138 million. This stagnant money is lost behind cars and sofas, with another 8% (£19.885 million) in bins. To get these pennies back into the economy the government needs to give them purpose, for consumers to then reuse them.
A potential solution to this issue would be to install cash machines in supermarkets to exchange pennies for larger coins, hence giving a second life to pennies as they return to the sellers. This method is already in use in Belgium with success, as they have permanently stopped the production of pennies as of January 2018. The recycling of pennies would help the UK move towards the complete and permanent stop in their production, and although the Royal Mint does not share the costs of annual production of pennies, it would obviously represent a significant cut in government spending for a purpose of limited use. Instead, the government would be able to use this money for other more useful purposes such as social welfare, charity funding, and development of infrastructure.
The effective recycling of pennies in this way could help plummet the proportion of pennies that are economically inactive, and so reduce the need for Minting. This will help phase out the pennies, as now a limited quantity of pennies will be in circulation. In the more distant future, as pennies become rarer and rarer, policymakers can then decide whether it is best to completely remove pennies from circulation or not. But for now, at a time where Government Spending has a real impact on the lives of many people, the UK Government could save millions annually by stopping the production of these pennies. This will only have limited negative impacts in contrast to the potential benefits that could follow. Many other countries such as Canada, Belgium, Ireland, and Sweden have already taken the first step and the UK should consider this path.