Malaysia to Drop 1-Sen Coin While Avoiding Inflation
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One of the big arguments that has stopped such countries as Canada and the United States from phasing out their lowest denomination coin (the cent in these two examples) is that there is concern that merchants will round up prices, causing inflation in the process.
Malaysia understands this, and is still willing to take the chance that by phasing out its 1-sen denomination, this being its lowest coin denomination, the nation can save on production costs without creating inflationary pressures in the processes. Malaysia's currency system is based on 100 sen equal to one ringgit.
The 1-sen coin may only be worth about 0.3 cents US but it doesn't come cheap to maintain. It costs 4.2 sen to produce a single 1-sen coin due to an increase of 300 percent in copper throughout the past three years. There are about 4.4 billion of the coins in circulation, according to central bank estimates, however the bank also claims 99 percent of the 1 sen's issued are not being returned to circulation.
According to Malaysia Domestic Trade and Consumer Affairs Minister Datuk Shafie Apdal, "It will be more convenient for both parties. Businesses will no longer have to handle the coins or ensure a ready supply, while consumers will also not have to worry about carrying the coins."
He continued, "On top of that the government will save 18 million ringget which it spends yearly to mint these coins." Shafie acknowledged he is aware retailers are already calibrating cash registers since the issuance of the 1-sen coin will cease April 1, 2008. In an effort to ensure the retailers can't turn the opportunity into an April Fools Day by simply rounding up prices on everything in their stores Bank Negara, the central bank of Malaysia, is holding talks with major retailers to ensure they will identify a price as having been rounded up or being rounded down.
In addition, although the 1-sen coin will no longer be issued the coin will continue to be honored as legal tender until some yet to be announced date in the future.
According to Bank Negara Assistant Governor Lilian Leong, the bank will reduce production at first, then once the market has "settled" a proposal to withdraw and demonetize the denomination will follow.
Shafie added, "It [phasing out of the 1-sen coin] will also not affect the current price structure. Businesses can continue to charge 29.99 ringget or other odd numbers they are currently using."
Shafie insisted most 1-sen coins are not used and become what he called "economic wastage."
The real question should be if all these assurances are window dressing or not. It would appear retailers are only interested in rounding up prices. Petrol Dealers Association of Malyasia Representative Datuk Hashim Othman recently said, "We will suggest to them [the central bank] to allow us to make it such that the pump stops at multiples of five sen."
Malaysian Retailers Association President Toh Peng Koon said, "There have been shortages of the coin before and now this will no longer be an issue." He pointed out that there is now a 3 ringget handling charge for one bag of 1-sen coins.
Right now the 1 sen can be used for payments to the value of two ringget. The proposed rounding mechanism would not apply to purchases such as for airline tickets. The rounding mechanism would apply to payments by credit, charge, or debit cards, as well those payments made by check.
Malaysia is modeling its rounding proposal from a similar rounding that was previously introduced successfully in Australia and Singapore.
