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Poland May Cut Back on Coin Denominations
By Richard Giedroyc, World Coin News
March 25, 2013

This article was originally printed in World Coin News.
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Inflation appears to be taking its toll on low denomination circulating coins virtually everywhere in the world. In some situations the coins simply have no real purchasing power. In others the coins may cost more to produce than is their face value. In yet other situations the metal content of the coins may exceed their face value.

Poland is one of the many nations now facing this dilemma. In a Jan. 21 Wall Street Journal report Patryk Wasilewski describes the problem in Poland as being “production costs are many times higher than their face value.”

Poland has a problem that involves all three scenarios explained above. Poland’s lowest denomination coin, the 1 grosz, is worth a hundredth of a zloty and about a third of a US cent.

It is expensive to produce, and it has a greater scrap metal than face value. The United States, as an example, has made it illegal to scrap its 1- and 5-cent coins for their metal content. No such law exists in Poland.

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It may appear to be an attractive proposition that the 2-grosze coin has 6 grosze value in its metal content, but you are still dealing with a small value coin. Barbara Jaroszek is the deputy head of the Bank of Poland Money Issuance Department. She is quoted in the Wall Street Journal article as saying, “It’s not so simple to gather one [metric] ton of pennies [grosze] … so I don’t think we will have a national movement of turning them in for scrap, but indeed metals’ value is three times that of the coin.”

Bank of Poland Communication Department head Marcin Kaszub took a different view: “There is a threefold margin, so I am sure some people will seek a business opportunity here.”

According to central bank statistics, these denominations account for more than half the 13 billion coins now in circulation. Should production of these coins cease and the coins be demonetized the bank estimates it could save about 40 million zloty or about $12.9 million annually. These savings represent both manufacturing and servicing costs.

The issues surrounding scrapping and manufacturing costs are both, however, overshadowed by the possibility the withdrawal of these coins could fuel inflation. The central bank, undeterred by this prospect, has drafted legislation to be presented to the Polish Sejm or Parliament that would make it obligatory to round cash transactions to the 0.05 zloty (5 grosze). The proposal will become effective in 2015 if approved.

The bank’s reasons for wanting to discontinue these coins may not necessarily be in the best interests of consumer. The 1- and 2-grosze coins were introduced in 1995. Their purchasing power has been diminishing ever since. Inflation is the culprit.

According to Bank of Poland Legal Department head Aleksander Proksa, the Polish zloty is now worth a third of what it was when Poland re-denominated its currency in 1995. Poland, as with most of Eastern Europe, had only recently become a democracy. Hyperinflation plagued the first years of the new government. In 1995 four zeros were lobbed off the existing bank notes, with coins being re-introduced. Inflation is part of the real world, and even with it under reasonable control inflation never fully goes away.

Should the proposed legislation be passed, Poland would follow the example of the Czech Republic, rounding prices to the nearest “five.” The proposed legislation allows for these low denomination coins to remain legal tender, with prices being allowed to continue as they are now posted. The anticipated lower demand for the coins would allow the bank to cease minting any more of them.



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Comments
On March 26, 2013 ford.ka said
The proposed bill has been scrapped instead of the coins. At least for the time being 1, 2, and 5 groszy live on.

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