The bank also noted there has also been a decline in the number of items priced ending in 99 pence.
Bank of England economists recently released a statement reading, “As inflation steadily erodes the purchasing power of low denomination coinage, the case for its removal becomes stronger.”
The statement continues, “This is not a new phenomenon and has been seen time and again, the world over. Even in the United Kingdom there is a precedent with the abolition of the halfpenny in 1984. Many of the arguments that were made in the early 1980s around the inflationary impact of removing that particular tiny coin are being made now. However, the evidence, including our own work on UK price data suggests they are unfounded.”
This conclusion was published in the bank’s blog “Bank Underground” but was posted for the purpose of “sharing views that challenge – or support – prevailing policy orthodoxies,” rather than because it has become bank policy.
The survey from which these conclusions were reached suggests six in 10 penny and twopence coins are used only once in circulation, while one in 12 actually are discarded.
Regardless of the bank’s position, the government nixed any suggestion the denomination will be scrapped. During late August, a spokesman for the prime minister said of the decision to continue striking the denomination, “One of the elements was whether the denominational mix of coins meets the public need. From the early reaction it looks as if it does.”
The British penny now has less purchasing power than did the now obsolete halfpenny at the time the halfpenny was withdrawn. There is concern that should the penny and perhaps the twopence be withdrawn, retailers will round prices up to the nearest five pence, driving up inflation as a result.
Bank of England Governor Mark Carney has publicly noted countries including Australia, Brazil, Canada, and Sweden have dropped their lowest denomination coin in recent years, none of which later suffered from inflation for that reason.
Marilena Angeli and Jack Meaning posted arguments on “Bank Underground” in support of getting rid of the penny. According to Angeli and Meaning, rounding is negated when people purchase three items or more at once. They agree non-cash payment methods allow shoppers to be charged the same amounts as if they paid by cash. They further quoted statistics that only 12 percent of retail prices are now posted ending with 99 pence.
There has been speculation in the media about the cost of producing British pennies and twopence. According to the British Royal Mint website, “The Royal Mint does not reveal exactly how much it costs to make specific coins as such information could be used to its competitors’ advantage.”
The website also reports, “The cost of producing United Kingdom coins varies according to the specification of each denomination. The value of metal in each coin accounts for a large part of the total cost, but it is also necessary to take into consideration the broader costs of the manufacturing process. These vary according to the complexity of the coin.”
The English (later British) penny can be traced to coins used at the time of the Roman occupation of parts of Britain. The early penny with which most collectors are likely familiar is a silver coin of 1.3 to 1.5 grams (0.0142 to 0.046 troy ounces) introduced by Offa of Mercia in 785 C.E. These pennies superseded the Anglo-Saxon sceat and mimicked the denier denomination widely circulating on continental Europe at the time. The silver penny became the mainstay denomination when the Kingdom of England was established in the ninth century. The penny was valued at one 240th of a pound sterling. The denomination was continuously in circulation until the establishment of the Kingdom of Great Britain in 1707.
The silver composition penny saw little circulation during the 18th century and with the exception of Maundy coinage became a bronze denomination coin during the reign of King George III (1760-1820). The reduced-diameter penny now in circulation was introduced in 1971 at the time of Britain’s decimalization of its currency system.
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