Last Thursday, the Lithuanian Parliament passed a bill to phase out 1 and 2‑cent coins. The amount of goods and services will be rounded up once the legislation comes into effect on May 1, 2025.
Next year, final bills for Lithuanian cash customers will be rounded to the nearest multiple of 5 cents. This measure, passed by the Lithuanian Parliament, is a step towards abandoning the use of 1 and 2‑cent coins.
The law regarding rounding cash payments was passed by 65 votes in favor, 20 against, and 31 abstentions.
Before the vote, Liberal Member of Parliament Andrius Bagdonas referred to a “bureaucratic burden” on businesses, the state, and taxpayers. “1 or 2‑cent coins buy us nothing more than a small plastic bag ” he said during the session.
For his part, MP Tomas Tomilinas, from the Union of Democrats for Lithuania, opposed the proposal, believing that rounding up prices could further fuel inflation. “It doesn’t seem to matter to us living in Vilnius on a normal salary, but if someone on a modest income has to pay 2 or 3 cents more for an item, it will be bad for them” he explained.
Cash, the main payment instrument for everyday purchases
According to the European Payments Council, 52% of Lithuanians prefer to pay by card or other digital means over cash. In a further move towards digitalization, 94% of Lithuanians with bank accounts have used online banking and 69% have used mobile payment apps. Cash, however, remains the main payment instrument for everyday low-value transactions.
In 2020, the European Commission was considering a proposal to gradually eliminate 1 and 2 euro cent coins, AFP reported.
Brussels was thinking of introducing rounding rules that would apply across all EU states, enabling consumers to pay without using 1 or 2 euro cents.
Of the 19 states in the eurozone, the Netherlands, Finland, Ireland, Belgium, and Italy have already adopted rules requiring or encouraging the rounding of cash payments to reduce the use of both denominations.
Indeed, Italy was one of the first countries in the eurozone to abandon small coins. The 1 and 2‑cent coins have not been minted there since 2017. Although these coins are still accepted, purchase amounts are rounded up.
“Italians received these small copper coins as change but don’t spend them” Sergio Boccadutri, a member of the center-left Democratic Party, told the Sole 24 Ore newspaper at the time, “in short, it’s a loss of production because they cost more than they’re worth.”
In a report published in 2018, the European Commission stated that rounding could be accompanied by immediate withdrawal. Alternatively, it could be applied in a “disappearance scenario” in which 1 and 2‑cent euro coins would no longer be minted but would retain their legal tender status.
The price of coins exceeds their value
The report also explained that issuing one euro cent “is a deficit activity for Member States,” with the purchasing costs alone exceeding the nominal value of the coin. In some countries, the price of 2 euro cent coins is also higher than their value.
The Bank of Latvia estimates that the 47 tons of lost or mislaid one- and two-cent coins corresponded to 260,000 euros (280,000 dollars) disappearing from the Latvian economy every year.
An EU survey carried out in 2017 showed that citizens of eurozone countries were in favor of phasing out small coins (64%).
To allay concerns of higher inflation caused by this possible decision, the Commission had stated in its report that countries where the use of these coins had already been restricted showed no (measurable) increase in prices.
Prices would be rounded up to the nearest 5 euro cents for cash payments. The reduction in cash processing costs could also enable retailers to lower their prices, the commission’s report indicates.
