Irish Bank Encourages coin Substitutes|
June 26, 2013
The Central Bank of Ireland has a new idea. If the cost of issuing coins is too expensive for the government in this turbulent economic climate, why not push the burden onto the private sector. The bank plans to encourage people to use debit cards and other forms of electronic banking rather than cash!
This is one of the recommendations appearing in the recently released “National Payments Plan” published by the Central Bank of Ireland.
The NPP is chocked full of monetary innovations. The plan suggests the 1- and 2-cent coins be eliminated, and that the public be encouraged to use electronic forms of payment while discouraging the use of checks.
France and Ireland, in that respective order, use more checks to make payments than do any other countries in Europe. Three in 10 people in Ireland have a checkbook. The highest ownership is among the elderly and in the farming community. Most checks are written by consumers and used to pay other consumers or small businesses. The study recommends setting a date during 2014 after which checks can no longer be written to or from business users by consumers.
Ireland also has the highest withdrawal of cash per capita from Automatic Teller Machines of all the countries in Europe. Half of all social welfare payments are made in cash. The NPP recommendations include increasing the number of €10 notes dispensed by ATM’s, implementing new technologies including mobile payments and contactless cards, and modernizing the social welfare payment system.
Tony Grimes is a former deputy governor of the Central Bank of Ireland and is currently chairman of the National Payments Plan. Grimes was quoted in the April 24 The Irish Times newspaper as saying, “Our vision is for a society where modern forms of payment will be universally accepted and be the preferred payment for most. However cash will remain a widely used method of payment while checks continue to be available for those consumers who want to use them.”
National Payments Plan Project Manager Ronnie O’Toole added, “Customers tend to hang on to their small change so it doesn’t circulate. A 1-cent coin costs two cent to mint due to the rising cost in metal. They don’t buy anything as no goods or services are priced at this level and very few machines accept them.”
According to The Irish Times, “The Central Bank found that 1- and 2-cent coins are not actively used by consumers and are expensive to mint. In many countries, including the Netherlands and Finland, low denomination coins have effectively been removed from circulation through the use of the rounding rule.”
The danger in using the so-called rounding rule is that while some prices are supposed to be rounded up or down “a nickel” merchants usually only round prices up, causing artificial inflation in the process.
The Irish central bank plans to find out. One of the towns of Bray, Drogheda, or Louth will be chosen as a guinea pig through which the rounding rule will be applied at a date yet to be announced. Each is a mid-size town. Nothing further was said regarding why these towns were suggested or if the local populace agreed to be involved in the experiment.
Central Bank of Ireland Deputy Governor Stefan Gerlach said of the NNP changes, “Operating an excessively paper based payment system is like imposing an unnecessary tax on the economy, pulling scarce resources into activities which can be done more effectively with electronic payments.”
Incidentally, the NPP recommendations have been approved by the Irish government. The plan is to be monitored and implemented through the end of 2014, with one target being to double the number of electronic payments being made before 2015.
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