Invaluable experience: Does Russia need to abandon coins
The American Mint this week minted the last penny, a one—cent coin. The coin will not be withdrawn from circulation, but will no longer be produced. This is the first change in the American banknote system in the last half century. The decision is due to financial considerations. Why the cent began to be withdrawn from circulation, why fewer coins are being minted in the world, and whether it is necessary to stop issuing rubles, "dvushki" and chervonets — in the Izvestia article.
A symbol of good luck
The last pennies were solemnly minted at the Philadelphia Mint, where coins of the smallest denomination in the country have been produced since 1793. This happened a year after Congress passed the Coin Act. The last few cents will be auctioned off. Pennies remain legal tender, but new coins will no longer be issued.
Prior to that, the last time the coin was withdrawn from circulation was in 1857 (we are talking about a half-cent coin). In general, the last time in America they stopped minting or printing some kind of banknote was quite a long time ago. So, in 1934, they stopped issuing the $1,000 bill, in 1945 they decided not to resume its production, and in 1969 they began to withdraw it from circulation. However, thousand dollar bills are still accepted as legal tender, but if the bill falls into the hands of the Fed, it is destroyed.
President Donald Trump has ordered an end to the production of pennies, as the cost of producing them has increased to almost four cents apiece, and the value of one cent has become outdated to some extent. Billions of pennies remain in circulation, but they are rarely needed for financial transactions in the 21st century economy.
According to Kirill Chernovol, a researcher at the Gaidar Institute's Laboratory for the Analysis of best international practices, the US decision to abandon the minting of a one—cent coin is primarily an economic issue, not a "war on cash."
— The American Mint has suffered direct losses on pennies for many years. The total cost of their issue was estimated at about $117 million, and the loss on their minting was more than $85 million per year. The Federal Reserve's report on the monetary coin for 2022 records that more than half of all circulating coins issued in the United States were pennies, while the coin itself has a very low purchasing power, the expert draws attention to.
He points out that the report explicitly states that the production and circulation of pennies is expensive for both the state and the participants in the turnover, and the total "public" costs of circulating one such coin (transportation, recalculation, storage) may exceed its face value. The document estimates that reducing or ending the issue of pennies would save up to $100 million per year.
Nevertheless, many people are nostalgic for them, considering them a symbol of good luck. In addition, they were used for collecting. And some small businesses have expressed concern in recent weeks about the depletion of stocks and the approaching end of production.
The withdrawal of coins (and small bills) from circulation is a common situation for countries experiencing high inflation. This is less common among more stable States in this regard. So, in 1979, France stopped minting a one-centime coin, but it continued to be used until 2001, when all the old money was replaced by euros. In the UK, the halfpenny coin was "reduced" in 1983, but it continued to be used for the rest of that year and the next. In Switzerland, the one-rappen (1/100 franc) coin was discontinued in 2006.
Coins worth 125 billion rubles
In Russia, the rapid rise in prices regularly took coins out of circulation. In the 2010s, it became impractical to mint coins of up to one ruble. However, they stopped doing this only in 2019. A lot of time has passed since then, and the purchasing power of the ruble has fallen by more than 70%. There was a question of stopping the production of coins of one ruble and above. Does it make sense at the moment?
"The Russian situation is different, but the logic of the regulator is similar in many ways," Chernovol believes. — The Bank of Russia does not disclose the exact cost of individual denominations, but as of January 1, 2024, 72.2 billion coins worth about 125.9 billion rubles were in circulation in Russia. This is about 0.7% of the total cash supply in total.
The expert adds that, according to the experience of the United States and Russia, the cost of minting coins of the smallest denominations can turn the issue into a source of losses for the budget.
— At the same time, the coin turnover itself will decrease in the digital economy: currently, about 86-87% of retail payments are made in non-cash form in both the United States and Russia, and, for example, in 2019 in Russia this share was about 61%. That is, the population's need for cash itself has been decreasing over the years," Chernovol said.
In Russia, there was no accurate data on the cost of producing coins, but, according to expert estimates, minting pennies has long been unprofitable. The situation is more balanced in rubles, says Alexander Potavin, an analyst at Finam Financial Group.
According to Alexander Abramov, head of the Laboratory for the Analysis of Institutions and Financial markets at the Presidential Academy, problems with an oversupply of coins concern not only the state, for which their minting may be unprofitable, but also the population.
— The main difficulty is that citizens are overloaded with coin reserves with limited opportunities to get rid of them. In fact, people have a volume of small things on their hands, comparable to several railway trains, and this creates a tangible inconvenience in everyday life," the expert points out.
He added that from the point of view of the reasonableness of the monetary system, the proportionality between the maximum bill and the minimum nominal value of the coin is important.
— In the European Union, the gap between the euro cent and the €200 bill is about 1 in 20,000. In the United States, taking into account the refusal to print a cent, the proportionality between 5 cents and $100 is about 1 in 2000," Abramov said.
He also noted that there has been no formal abandonment of kopecks in Russia, they continue to be used in a number of calculations, primarily in the housing and communal services sector.
— Another thing is that the Bank of Russia has stopped minting pennies, but there is no official decision to withdraw them from circulation. If we compare a penny with a 5,000—ruble bill, the gap of almost 1 to 500,000 is obviously irrational. If we take the range between 1 ruble and 5,000 rubles, the picture is closer to the practice of the United States and Europe," the economist concluded.
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