The E-Sylum:  Volume 8, Number 14, April 3, 2005, Article 3

IS THE DIME THE NEW PENNY?

Dick Johnson writes: "New Zealand stopped issuing one and
two cent pieces in 1990. It now plans to abolish the five-cent
coin. Its lowest denomination coin remaining in circulation will
be the ten-cent dime. What does New Zealand know that
other countries don’t know? That greater efficiencies are
possible by eliminating low-denomination coins of little
usefulness?

A news article published Thursday, March 31, 2005,
announced the country will drop the 5-cent coin and change
the size and weight of the remaining fractional coins, 10-cent,
20-cent and the 50-cent coins. It will strike these in a lower-
cost plated steel. The $1 and $2 coins are unaffected and
will continue to be struck in copper-nickel.

The Reserve Bank of New Zealand, which is charged with
the country’s coin issuing, is taking this step -- unprecedented
among modern coin-issuing nations! – not only eliminating
the three lowest coin denominations but changing the way
the entire country must do business. Low cost items can be
quoted in cents, but a "transaction price" will be required
for a final purchase price, either for that single item or a
multiple-item purchase. By July 2006 all transactions MUST
be a multiple of the dime coin to be able to make change,
the basic purpose of all monetary coins.

In effect New Zealand has made its cent a "money of account."
This becomes fact as well as in practice now that it has
eliminated all means of making de facto transactions in
cents.

Obviously rounding down or rounding up to the nearest
10-cent value must occur for the "transaction price." On
balance all prices one to four cents would be rounded
down. All prices six to nine cents would be rounded up.
This should balance out in the long run to no one’s benefit,
to no one’s detriment.

Critics will say this will always be to the detriment of the
consumer, particularly for a price in the center – five cents
– where a perceived disadvantage would occur to the
buyer as the seller would instinctively round up. This is not
always true. We have reported here in The E-Sylum (v8 n8,
February 20, 2005) of the pharmacy chain in Israel where
they established a policy to always round down a final price
ending in 5 cents (5 agorot) to the lower amount ending in
an even 10-cent (10 agorot) multiple (even when a 5-agorot
coin was still in circulation).

Retail businesses in New Zealand will quickly recognize an
advantage over their competitors with a published policy to
always round down to the customer’s advantage. A five-
cent loss is paltry in a multiple dollar purchase, or in keeping
the good will of a customer.

New Zealand’s rising economy is driving the elimination of
its low denomination coins. Such low value coins are just
not necessary for small-amount daily transactions any more.
And the reason for this is pure economics. Case in point is
the cost of a loaf of bread over several hundred years. It is
different when its cost is one cent, from ten cents, from one
dollar, from ten dollars. World economies have advanced
where we no longer have one cent bread or ten cent bread,
thus we no longer need cent coins (or 5-cent coins) as this
holds true for other commodities as well.

Officers of New Zealand’s Reserve Bank understand this
reality. They have taken a cutting-edge step to earn tremendous
cost savings for their country, for their retail businesses, for
their citizens. Savings accrue from not having to strike,
transport, store, and use coins of insignificant value. Their
only shortcoming, perhaps, is the abruptness of this statement
after its first announcement in November last year. (Don’t
they need a massive PR campaign to sell the idea before
implementing it?)

The vending machine industry in New Zealand will complain
the loudest. They must reconfigure every machine in the
country (they say at a cost of $200 a machine). This must
also be done for coin changers. But the action advances
the country’s economy with minimum savings of $2 million
a year.

My future predictions:

(1) New Zealand will become a textbook case for Treasury
departments of all modern world nations to watch and study.
These nations will ultimately follow suit in eliminating coin
denominations below the fractional value of ten. The only
question is when? More progressive nations will take this
action quicker than backward nations.

(2) New Zealand will soon recognize it will have too few
coin denominations for efficient coin transactions. It will
issue $5 and $10 coins in the not too distant future. There
is an optimum number of coin denominations to have in
circulation for efficient commerce.

(3) Coin collectors and numismatists will experience a
renewed interest in New Zealand coins, buying up obsolete
denominations and certainly welcoming new denominations.
Its future proof coin sales will soar.

(4) New Zealand’s vending industry will recover.

The news report the above analysis is based upon is far
too brief, but it should be read anyway: Full Story

The Bank’s news release: Bank Release "

  Wayne Homren, Editor

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