Keep the change: BOK mulls cutting coin production as rejection at stores dents circulation

There's something more and more businesses won't do even if you pay them, or at least try: accept coins.

The small discs are becoming obsolete to the point that the central bank is considering halting production altogether.

"I had to come back home with the coins we carried out to shop because they only accept cash that's wired to their bank account," said a parent who went shopping to a local stationery store with their elementary school child with the child's piggy bank. 

In another case, a resident of Yongsan District, central Seoul, went to a bank to exchange a stash of coins for bills, only to be turned away. After seeing the bag of coins, a bank employee told the resident that the branch “only exchanges coins from 10 a.m. to 11:30 a.m. on Wednesdays” and asked the person to return the following week.

The resident then went to a nearby supermarket, thinking it might be easier to simply spend the coins, but was also refused.

“Customers are waiting in line, so it’s impossible to count every coin one by one to check the amount,” the supermarket employee said to the resident. “Please exchange them for bills and come back.”

With demand dwindling, the Bank of Korea (BOK) has halted the production of coins for circulation for the second consecutive year, the monetary agency confirmed Sunday. If demand continues to decline, the central bank could eventually stop producing coins for circulation altogether.

“The BOK assesses market demand each year and sets its annual coin production plan accordingly, and due to declining demand, it suspended production of all coins for circulation — the 10 won (1 cent), 50 won, 100 won and 500 won coins — both last year and this year,” a BOK official said.

The central bank had already stopped producing new 1 won and 5 won coins in 2006. 

The net issuance of coins — the value of coins issued minus the value returned to the central bank, an indicator of market demand — has steadily declined from the first quarter of 2016 through the second quarter of this year, according to BOK data.

Net issuance of 500 won and 100 won coins has remained negative for 15 consecutive quarters since the fourth quarter of 2022, while that of 50 won coins has been negative for 19 consecutive quarters since the fourth quarter of 2021. Negative net issuance means banks are returning more coins to the BOK than the central bank is issuing at their request.

While demand has fallen, the cost of producing coins has surged due to rising prices for raw materials such as copper, nickel and aluminum. The 500 won and 100 won coins are made of copper and nickel at a ratio of three-to-one, while the 10 won coin is made of aluminum and copper at a ratio of 52-to-48.

The BOK spent 96.3 billion won on coin production over a recent five-year period beginning in 2019, while the face value of the coins produced totaled just 27 billion won, according to data provided by the office of People Power Party Rep. Park Sung-hoon. In other words, producing the coins costs more than they are worth.

Demand for coins, however, still exists in traditional markets, areas with large older populations, coin-operated karaoke rooms and arcades. Although it has stopped producing new coins for circulation, the BOK is meeting such demand by recirculating coins returned by banks.

Experts say suspending new coin production may be inevitable but warn that a shortage could potentially put upward pressure on prices.

The United States faced a similar problem early last year. After the U.S. Department of the Treasury announced that it would stop producing new pennies, retailers including convenience stores and grocery stores across the country faced a penny shortage. Some retailers responded by rounding prices.

“If the suspension of coin production leads to a shortage of coins in circulation, merchants could slightly raise prices to avoid having to give customers change,” said Hur Jung, a professor of economics at Sogang University. “If that practice becomes widespread, consumers could feel as though prices are climbing.”

“Korea is not a country like the United States, where taxes added to restaurant menu prices can result in amounts down to the cent, and digital payments are also widespread, so a ‘penny shortage’-type situation is unlikely,” said Jeong Dae-young, a professor of economics at Yonsei University. “Still, contingency measures should be in place in case disruptions to payment systems, such as those caused by power outages, lead to renewed demand for payment by coin.”

BY KIM DO-NYUN [[email protected]]