COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Issues related to the continued issuance of the 1 and 2 euro cent coins
Date: 2013-05-14
Institutions: European Commission
Subjects: Eurobond, European currency, copper

EUROPEAN 
COMMISSION 

Brussels, 14.5.2013  
COM(2013) 281 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Issues related to the continued issuance of the 1 and 2 euro cent coins 

{SWD(2013) 175 final} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Issues related to the continued issuance of the 1 and 2 euro cent coins 

1. 

INTRODUCTION 

The  introduction  of  the  euro  in  1999  was  a  major  step  in  European  integration.  Since 
1 January  2002,  the  euro  has  been  available  in  physical  form,  as  banknotes  and  coins  with 
now around 330 million EU citizens in 17 of the EU Member States using the euro as their 
currency. The denomination structure of the euro banknotes as well as of the euro coins (1, 2, 
5, 10, 20, 50 cents, 1 euro and 2 euro) has remained unchanged since the introduction of the 
euro.  

Euro coins are issued by Member States but the Council is competent for harmonizing their 
denominations  and  technical  specifications.  Denominations  and  technical  specifications  of 
euro  coins  intended  for  circulation  have  been  laid  down  in  Council  Regulation  (EC)  No 
975/98. In accordance with Council Regulation (EC) No 974/98, coins denominated in euro 
and cent and complying with the denominations and technical specifications laid down by the 
Council are the only coins which have the status of legal tender in all Member States whose 
currency is the euro. 

In  2012,  the  European  Parliament  and  the  Council  requested  the  competent  institutions  to 
investigate  the  use  of  different  denominations  of  euro  coins  and  euro  banknotes  against  the 
criteria of cost and public acceptability1.  

Article 2 of the Regulation on the issuance of euro coins requires the European Commission 
to  assess  "the  continued  issuance  of  1  and  2  cent  coins",  (…)  notably  via  "a  cost-benefit 
analysis  which  takes  into  account  the  real  production  costs  of  those  coins  set  against  their 
value and benefits". 

This mandate should be seen against the background of the debate regarding the usefulness of 
the two smallest euro coin denominations since their introduction. The main elements of this 
debate are the high production and handling costs of the 1 and 2 euro cent coins compared to 
their  face  value,  the  significant  drop  (high  loss)  of  these  coins  from  circulation2,  and  the 
decrease in purchasing power of these two small denominations. The debate also centres on 
the  issue  of  inflation  or  perceived  inflation,  amid  the  general  public's  fear  that  a  potential 
cessation of issuance of the coins combined with a withdrawal of the coins from circulation 
could raise consumer prices. 

The  requested  assessment  was  conducted  on  the  basis  of  a  stakeholder  consultation  and  an 
extensive stock-taking exercise3. This communication presents four main policy options (from 

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Recital 7 of Regulation (EU) No 651/2012 on the issuance of euro coins (OJ L 201, 27.7.2012, p. 135). 
The level of loss can be described by a loss rate, which is the calculation of one minus the circulation 
rate, whereby the latter is the number of coins returned to the central bank divided by the number of 
coins put into circulation. 
A group of 'key stakeholders' was consulted in August and September 2012 by means of questionnaires 
on  two  main  scenarios  for  the  1  and  2  euro  cent  coins:  the  continued  issuance  and  a  potential 
withdrawal of the coins. The relevant stakeholders were identified and divided into two main groups: 
public  key  stakeholders  from  EU  Member  States  (i.e.  national  administrations,  national  mints,  and 
central  banks)  and  the  ECB  and  private  key  stakeholders  from  European  associations  and  business 
(banking associations, cash in transport business, consumer and retail associations). 

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maintaining the status quo to withdrawal of the 1 and 2 cent coins), and highlights the options' 
main features as well as their pros and cons. The staff working paper, in annex, contains more 
detailed elements.  

2. 

FOUR POTENTIAL SCENARIOS FOR THE 1 AND 2 EURO CENT COINS 

In  principle,  issuance  of  1  and  2  euro  cent  coins  could  either  continue  as  now  or  be 
terminated,  implying  two  scenarios  (continued  issuance  and  withdrawal)  to  be  explored. 
However,  based  on  the  results  of  the  questionnaires  and  the  stock-taking  exercise,  four 
possible  scenarios  can  be  identified:  continued  issuance  and  withdrawal  as  the  two  main 
scenarios, with one variant scenario within each. 

The first main scenario is the continued issuance of the 1 and 2 euro cent coins under today's 
issuance conditions without changing the legal or material context ("status quo scenario"). 
The coins remain legal tender and continue to be produced in line with the current technical 
specifications  (such  as  metal,  weight  and  size)  and  without  changing  the  production  and 
issuance  processes4.  A  variant  of  this  scenario  is  the  continued  issuance  at  reduced  costs 
which is based on the assumption that the coin issuance costs could be reduced by changing 
the material composition of the coin or by increasing the efficiency of the coin production, or 
both ("issuance at reduced costs scenario"). 

The second main scenario aims to abolish the 1 and 2 euro cent coins ("quick withdrawal 
scenario"). Under this scenario, the issuance of these denominations would cease while the 
coins  in  circulation  would  be  withdrawn  mainly  through  retailers,  supermarkets  and  banks 
within a pre-established short time period. Binding rounding rules would apply as of the first 
day of the withdrawal period and the coins would cease to be legal tender at the end of the 
withdrawal exercise.  

A variant of the quick withdrawal scenario is a "fading out scenario" which would have the 
effect  of  a  withdrawal  but  achieve  it  in  a  different  way.  While  the  issuance  of  coins  would 
cease  and  binding  rounding  rules  apply  also  under  this  scenario,  the  coins  would  however 
remain legal tender. The 1 and 2 euro cent coins could still be used, but only for payment to 
the rounded final sum. Because no new coins would be issued, the coins would be expected to 
disappear gradually from circulation due to the high loss rate and the lack of attractiveness of 
these coins as convenient payment means. 

3. 

3.1. 

TWO SCENARIOS FOR CONTINUED ISSUANCE OF THE 1 AND 2 EURO CENT COINS 

Scenario  of  continued  issuance  under  unchanged  conditions  ("status  quo 
scenario") 

This  scenario  is  by  nature  the  benchmark  against  which  the  three  other  scenarios  should  be 
assessed. 

3.1.1.  An ever-increasing issuance, as a consequence of a high loss rate 

The number of 1 and 2 euro cent coins issued since the euro changeover in 2002 is in excess 
of  46  bn  coins.  Within  ten  years,  the  amount  of  these  denominations  increased  by 
approximately 74%. Today, nearly one out of every two euro coins put into circulation is a 1 
or 2 euro cent coin. While the overall number of issued 1 and 2 euro cent coins is very high, 
the total value of these coins is only about 714 m euro. 

4 

See  Article  1  of  Regulation  (EC)  No  975/98  (OJ  L  139,  11.5.1998,  p.  6),  as  amended  by  Council 
Regulation (EC) No 423/1999. 

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The high increase of the number of 1 and 2 euro cent coins is mainly due to the high loss rates 
of these denominations, which ranges from 25% up to almost 100%.  

Consumers  do  not  often  use  the  1  or  2  euro  cent  coins  when  paying,  but  receive  them  as 
change from retailers. The coins seem to be handled as non-value items and are often hoarded 
rather than re-circulated.  

Though inflation has remained at a very low level since the launch of the euro, the purchasing 
power of 1 and 2 euro cent coins has already substantially eroded, declining to 0.81 euro cent 
on average for 1 euro cent coins.  

3.1.2.  A loss-making activity 

The overall costs of coin issuance is hard to assess, since it includes production, packaging, 
transportation,  storage  and  other  distribution  and  re-circulation  related  costs  for  banks  and 
retailers.  

When  considering  coin  production  costs,  three  key  components  need  to  be  investigated:  (1) 
the costs of the raw material used for blanks (the metal token on which the coin is minted); (2) 
the  production  cost  of  the  blanks;  (3)  the  costs  of  the  final  production  (i.e.  minting)  of  the 
coins.  Obtaining  detailed  information  on  the  various  cost  elements  mentioned  above  is  not 
easy, since the key players involved in the production process (i.e. blank producers and mints) 
usually  consider  these  elements  as  market-sensitive,  and  as  such,  covered  by  commercial 
secrecy.  

That said, the costs of production and issuance of 1 and 2 euro cent coins are generally high. 
Most Member States are confronted with acquisition costs exceeding up to four times the face 
value  of  the  coins  themselves,  leading  to  a  negative  seigniorage  income.  Based  on  the 
indications provided by 5 Member States, the non-weighted average acquisition price of these 
coins  for  the  respective  Treasuries  represents  around  150%  of  their  face  value,  while  the 
weighted average price is close to 300% (due to the rather high costs experienced by one large 
Member State).  

While the replies to the questionnaire did not provide systematic detailed information on the 
various production cost components, some preliminary and broad indications can nevertheless 
be deduced:  

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– 

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The costs of the coin blanks appear to amount to around 50-60% of the face value of 
the coin, with a relative cost generally lower for the 2 euro cent than for the 1 euro 
cent coins. . These high costs are due to the purchase of the raw material (metals). 
The coin industry has witnessed a vertical integration process, with some mints and 
blank producers combining forces to increase their profitability in a business that is 
characterized  by  high  volumes  and  small  margins  in  the  blank  manufacturing 
process. 

Preliminary  findings  show  that  the  cost  of  the  raw  material  constitutes  only  a 
relatively  minor  part  of  the  total  acquisition  cost  of  the  finished  product  by  the 
national Treasuries. The substantial variations in coin production costs can therefore 
not be explained by the costs of the raw material or the blank production process, but 
should instead be attributed to the final production process of the coins (i.e. minting) 
that is undertaken by the national mints of the euro area.  

Further analysis would be needed to investigate whether the variation in costs among 
national euro area mints is caused by the differences in the labor and/or capital costs 
or if it is related to potential inefficiencies in the production process. The substantial 

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cost  differences  between  national  mints  can  also  possibly  be  explained  by  the 
monopolistic position of the Mints in their respective countries.  

At  euro  area  level,  the  (weighted)  ratio  between  the  acquisition  price  and  the  face  value  of 
coins  issued  would  point  to  a  total  cumulated  net  cost  of  the  issuance  –  or  negative 
seigniorage – of 1 and 2 euro cent coins of EUR 1.4 billion euros.  

3.1.3.  Users are generally satisfied  

In terms of public acceptance, citizens are generally in favour of continued issuance. Evidence 
from  the  Eurobarometer  survey  undertaken  by  the  Commission  shows  that  citizens  are 
generally  satisfied  with  the  current  coin  denominations,  with  slightly  less  support  for  the  1 
and 2 euro cent coins. 

Mints support the continued issuance of these coins, if only because their minting represents a 
substantial part of their activity. Meanwhile, bank federations take a neutral view on the topic. 
It should be noted that both Mints and banks have the possibility to pass on the costs attached 
to these coins to their clients, via acquisition costs and handling fees, respectively.  

The  vending  machine  industry  is  not  concerned  by  1  and  2  euro  cent  coins,  since  vending 
machines  do  not  accept  these  denominations.  Retailers'  organizations  have  mixed  views  on 
the question of usefulness of 1 and 2 euro cent coins, since they face high handling fees (a roll 
of fifty 1 cent coins can for instance sometimes carry a handling charge of 40 cents) but at the 
same time feel that these coins are useful for retail payment operations.  

3.2. 

Scenario  of  continued  issuance  at  reduced  costs  ("issuance  at  reduced  costs 
scenario") 

The scenario of issuance at reduced costs is a variant of the status quo scenario and entails the 
continued  issuance  of  the  smallest  denominations,  while  looking  into  possibilities  to  reduce 
the current excessive costs of issuance. There are two ways to lower the acquisition costs of 
the  1  and  2  euro  cent  coins,  not  necessarily  mutually  exclusive:  changing  the  coin 
composition and/or changing the coin production process.  

3.2.1.  Changing the coin composition 

The  first  measure  would  be  to  change  the  composition  of  the  coins  and  optimize  existing 
manufacturing tolerances or use cheaper metal, such as stainless steel, while keeping the size 
of the coins unvaried. This could be achieved through an amendment of Council Regulation 
(EC) n°975/98.  

The use of less precious metal could in some cases lead to a change of the colour of the new 
coins.  

While views on the potential alternative compositions of the 1 and 2 euro cent coins (stainless 
steel, aluminium, zinc) and the size of the potential cost reductions diverge, the existence of a 
cost saving potential is uncontroversial.  

However, as indicated earlier, the cost of the raw material constitutes only a minor part of the 
total costs of the finished product. The gap between acquisition costs and face value of these 
coins – as well as the important differences in this gap between euro area Member States - are 
not due to the costs of the raw material, but rather due to the production process of the coins.  

3.2.2. 

Improving the efficiency of the production process 

Further analysis would be needed to investigate whether the variation in costs among national 
euro area mints (with for instance one Mint being able to produce once cent coins for less than 
their  face  value  and  another  one  selling  them  to  the  Treasury  four  times  its  face  value)  are 

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caused  by  differences  in  the  labor  and/or  capital  costs  involved  in  the  final  coin  production 
process or if they are related to potential inefficiencies in the production process. Addressing 
those possible deficiencies would fall under the responsibility of Member States.  

The application of both sets of measures, while continuing the issuance of the 1 and 2 euro 
cent  denominations  could  bear  significant  potential  for  savings.  While  the  other  costs  of 
issuance (e.g. related to raw handling) would not be addressed and over-production due to a 
high loss rate would continue, the negative seigniorage could be significantly reduced, if not 
eliminated. 

4. 

TWO SCENARIOS FOR WITHDRAWAL OF THE 1 AND 2 EURO CENT COINS 

4.1.  Withdrawal with quick loss of legal tender ("quick withdrawal scenario") 

The second main scenario is the withdrawal of the coins with a loss of legal tender.  

Under this scenario, the issuance of 1 and 2 euro cent coins would stop and the coins would 
almost  immediately  cease  to  be  legal  tender.  This  would  require  an  amendment  of  Council 
Regulation  (EC)  n°975/98.  Legally  binding  rounding  rules  (rounding  to  the  nearest  5  cent) 
would probably be needed 5 and the coins would be actively withdrawn from circulation. 

4.1.1.  Economic implications: positive impact on seigniorage but fear for inflation from the 

general public. 

An important economic consideration of the withdrawal scenario is its cost-saving potential. 
The  substantial  production  costs  of  these  small  coins  would  be  eliminated  and  the  negative 
seigniorage  related  to  the  issuance  of  the  coins  in  most  Member  States  would  stop. 
Businesses,  supermarkets  and  retailers,  in  particular,  would  no  longer  have  to  take  care  of 
cumbersome and costly handling of small denomination coins6, the costs of which they pass 
on to their customers through fees or price adjustments. 

Compared to the expected cost savings, stakeholders tend to believe that the one-time costs of 
withdrawing the coins are of secondary importance. There could even be a positive impact on 
state  income,  given  the  potential  elimination  of  the  afore-mentioned  costs  of  production. 
Furthermore,  the  abolition  of  the  two  lowest  denominations  could  slightly  increase  the 
demand  for  5  and  probably  10  euro  cent  coins,  with  an  expected  positive  impact  on 
seigniorage. 

On the other hand, a key public concern is that the quick withdrawal scenario would increase 
inflation.  It  is  feared  that  the  abolition  of  the  1  and  2  euro  cent  coins  could  lead  to  price 
increases, despite the application of rounding rules. The rounding of final sums or individual 
prices might lead consumers to also expect upward rounding or outright price increases in the 
future.  This  concern  particularly  holds  if  the  rounding  affects  items  that  are  frequently 
purchased  and  typically  paid  in  cash  and  could  thereby  influence  inflation  expectations. 

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The  framework  of  issuance  and  use  of  1  and  2  euro  cent  coins  in  Finland  and  the  Netherlands  is 
different from  the situation in the other countries of the euro area. Shortly after the euro changeover, 
Finland reduced the issuance of 1 and 2 euro cent coins to residual amounts. The Netherlands followed 
this approach in September 2004. Both countries keep the level of 1 and 2 euro cent coins in circulation 
low  due  to  rounding  rules.  In  Finland,  rounding  rules  to  the  nearest  5  cents  are  set  by  law  for  cash 
payment, whereas similar rules are implemented in the Netherlands since September 2004 on the basis 
of an agreement between the retail sector and consumer associations.  
Both  aspects were  the  main  drivers of  the  recent  abolition of  the  lowest  denominations  in Sweden in 
2010 (50 øre coin = around 5,5 euro cent) and Canada in 2013 (1 cent coin = around 0,7 euro cent). 

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However,  a  withdrawal  is  not  expected  to  have  a  significant  impact  on  price  stability  for  a 
number of reasons: 

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First,  a  number  of  studies  have  demonstrated  that  the  inflationary  effects,  if  any, 
would be very limited. In Slovakia, for example, a study on inflationary impacts of 
the  withdrawal  of  10  and  20  Haller  coins  concluded  that  the  cessation  and  related 
rounding rules would have only limited inflationary impact, with effects of less than 
0.01%. 

Second, first-hand experience with rounding rules in Finland and the Netherlands has 
shown that the impact of inflation was minimal or non-existing. 

Third, rounding rules would apply only to the final transaction and not to individual 
prices, thus limiting the potential impact. 

While such a withdrawal is not expected to have a noticeable impact on inflation, experience 
with  the  euro  cash  changeover  shows  however  that  it  could  contribute  to  a  distortion  of 
inflation perceptions (with a perception of a price increase not matched by HICP data) and as 
such, lead to some citizen discontent. Many stakeholders emphasized, during the consultation 
process,  that  citizens  are  currently  very  sensitive  to  plans  and  initiatives  which  could  be 
perceived  as  affecting  their  financial  situation,  particularly  because  of  the  difficult  general 
economic environment. If such a scenario were implemented it would, therefore, have to be 
accompanied by an intensive campaign to inform the public on the practicalities of the coin 
withdrawal and the rounding rules to be applied. 

4.1.2.  Citizens' and Member States' view on a withdrawal of low denomination coins 

The  Eurobarometer  survey  conducted  by  the  Commission  shows  that  citizens  seem  to  be 
satisfied  with  the  euro  coin  denominations  in  general.  The  minority  of  citizens  dissatisfied 
with the present coin denomination structure generally express a wish to have the 1 and 2 euro 
cents coins withdrawn.  

When asked for their preferred choice between continued issuance and withdrawal of 1 and 2 
euro cent coins in the formal consultation, the majority of Member States did not provide any 
answer to this question while a small number s opted for withdrawal. No firm conclusions can 
be drawn on the basis of this partial result. 

4.2.  Withdrawal through fading out period 

The fading out scenario would have the same effect as a withdrawal, but achieve it through a 
a common decision of the Member States to stop issuing 1 and 2 euro cent coins, combined 
with the application of rounding rules. These coins would remain in circulation as legal tender 
but,  would  progressively  disappear,  as  a  joint  consequence  of  the  high  loss  rate  and  the 
absence  of  new  issuance.  The  legal  tender  of  the  coins  would  be  withdrawn  when  their 
circulation becomes purely residual.  

4.2.1.  Rounding rules would be needed 

Rounding rules would probably need to be introduced to compensate the increasing shortage 
of 1 and 2 cent coins, while not preventing their use (these coins could still be added to reach 
5  cents,  like  in  Finland  or  the  Netherlands).  An  information  campaign  would  be  needed  to 
explain both the fading out and the rounding rules.  

4.2.2.  Circulation could become residual within a few years 

The exact rhythm of the operation cannot be predicted accurately, since there is no empirical 
data on fading out scenarios from Member States or other countries.  

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The  calculation  below  simulates  the  effects  of  a  fading  out  based  on  the  average  loss  rate 
(around 60%), assuming it remains stable over time. Most coins would stop circulating within 
a  4-5  years  horizon.  Their  circulation  would  become  purely  residual  around  2020,  at  which 
point a decision to witdraw their legal tender could be made.  

1 cent coins 

Annual loss rate 60% 

2 cent coins 

Annual loss rate 60% 

2013 

2015  2017  2019  2021  2023  2025 

2013  

2015  2017  2019  2021  2023  2025 

26,260  4,202 

672 

108 

17 

3 

0 

20,606  3,297 

528 

84 

14 

2 

0 

Though  the  circulation  of  coins  would  diminish  quickly  under  this  scenario,  banks, 
supermarkets  and  other  retailers  would  continue  to  face  costs  for  handling  the  remaining 
coins. However, no active withdrawal effort would be required. 

5. 

CONCLUSIONS 

Based on the results of the stakeholder consultation and the above analysis, a number of key 
conclusions can be drawn with regard to the continued issuance of 1 and 2 euro cent coin.  

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– 

The production of 1 and 2 euro cent coins is clearly a significantly loss making 
activity  for  the  euro  area.  Each  of  the  four  scenarios  for  addressing  these 
problems  could  apply  to  the  1  and  2  euro  cent  coins  even-handedly.  The 
analysis did not bring up any indication that the scenarios should apply to one 
denomination instead of the other (i.e., 1 or 2 coin) only. 

The  attitude  of  the  general  public  to  1  and  2  euro  cent  coins  is  paradoxical: 
they seem attached to these small denominations and fear the risk of inflation if 
they were to disappear, but they handle these coins as non-value items and do 
not  re-circulate  them  in  payment  channels.  The  resulting  high  loss  rate 
combined  with  the  existence  of  psychological  prices  lead  to  an  ever-growing 
demand for issuance of new small coins. 

The  economics  of  issuing  1  and  2  euro  cent  coins  would  plead  for 
discontinuing  issuance.  That  said,  cost  elements  need  to  be  balanced  against 
other considerations, notably the negative reaction from the general public that 
rounding rules could trigger. They should also in particular be balanced against 
the background of the current depressed economic outlook.  

Discussions  between  stakeholders  are  needed  on  the  basis  of  the  above 
described  four  scenarios.  Should  a  clear  preference  emerge,  the  Commission 
will come forward with the necessary legislative proposals. 

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