Ronnie O’Toole is Programme Manager of the National Payments Plan, and is leading the rollout of rounding nationally. He is an economist by training, and has previously worked in Forfas, the Department of Finance and as Chief Economist of National Irish Bank.
Rounding comes to Ireland
They might be sitting in a jam jar, or perhaps in a chipped mug that nobody uses any more. Some people even have them in old water-dispensing canisters. But the one place they’re unlikely to be is exactly where they should be – in your pocket.
Consumers don’t like to use 1-cent and 2-cent coins. These coins tend to be hoarded, lost, or even thrown away. This can be seen from the statistics. The Central Bank has produced 2.5bn 1-cent and 2-cent coins since the Euro was introduced. This is around 1,500 coins for every household in Ireland, equivalent to the weight of a small child. Yet no matter how many the Central Bank produce, retailers come back asking for more for one simple reason: they give the coins to consumers and consumers put them straight into jam jars.
But a solution is on the way: rounding. This works simply. When a consumer is paying for a transaction in cash the total amount can be rounded down or up to the nearest five- or ten-cent. For example:
• 1 and 2 would be rounded down to zero;
• 3 and 4 would be rounded up to 5;
• 6 and 7 would be rounded down to 5; and
• 8 and 9 would be rounded up to 10.
A number of EU countries, both within and outside of the Eurozone, have already introduced rounding. In Europe, Belgium, the Netherlands, Finland, Sweden, Denmark and Hungary already operate a system of rounding. A number of non-EU OECD countries also operate the system, including Norway, Australia, Canada and New Zealand. In fact, the Australians melted their old 1-cent coins down and used them in the Bronze medals at the 2000 Sydney Olympic Games.
The initiative to bring rounding to Ireland came from the National Payments Plan (NPP). The aim of the NPP is to both promote greater use of efficient electronic payments such as debit cards and direct debits, to tackle payments aspects of financial exclusion, and to improve the efficiency of Ireland’s cash cycle.
One of the recommendations of the NPP was to conduct a rounding trial in Wexford in 2013 to test consumer and retailer reaction to rounding. The Wexford Rounding Trial was run and was a resounding success. When “don’t know”s are excluded, 85% of consumers, and 100% of retailers, surveyed after the Trial believed rounding should be applied nationally.
Following on from the success of the Wexford Trial, voluntary rounding of cash payments is to be rolled out nationally later this year.
When rounding is introduced it will be on a voluntary basis – both the retailer and the customer can opt-out. Rounding will not apply to electronic payments, such as by debit card, or to amounts being paid in cash at banks and post offices. Further, these coins will remain legal tender, and will continue to be produced by the Central Bank in line with demand.
What’s clever about rounding is that it only applies to the total bill, not to the prices of individual goods or services. So a 99c chocolate bar will remain 99c. Economic evidence from countries which have introduced rounding shows that the rounding of the final transaction total, rather than individual prices, curtails any inflationary effects. Rounding will involve rounding up and down.
The rollout of rounding is expected to create a mini-boom for charities, many of whom are encouraging people to donate their hoarded coins. Around €35m worth of these coins have been issued in Ireland since the launch of the euro, a large portion of which are sitting around in peoples attics, kitchens or garages. In October 2014 a ‘Change for Charity’ nationwide fundraising campaign was launched, aimed at encouraging people to donate hoarded coins. The beneficiary charities include the Irish Heart Foundation, Society of St Vincent de Paul, Our Lady’s & St Francis Hospices, Irish Autism Action and Gaisce (the President’s Award). The Make-a-Wish foundation is also encouraging donations of these coins, as are many other charities.
The taxpayer will also save from a reduction in demand for these coins, which cost more to produce than their face value. The Central Bank has estimated that the production cost of a 1-cent coin is 1.65c, while a 2-cent coin costs around 1.94c. The savings to retailers and financial institutions, through the reduced need to transport, store and process these coins, is likely be a multiple of the saving to the Central Bank.
So what should you do next? Many consumers are expected to go home and gather up their hoard of coins and put them to better use. That might be to donate them to charity, or just use the mini-windfall for a well-deserved treat. The actual rollout won’t happen until late in the year, and anational information campaign aimed at both consumers and retailers will be conducted by the Central Bank.
Informed well, Ireland will make this change easily. After all we’re good at making these changes – the euro-changeover being a case-in-point. Rounding will soon become accepted, and pretty soon you’ll barely notice. After all, it makes cents.