Cheaper coins to save government £10m a yearDebased coinage uses less copper, more steel

22 October 2010

A measure in the government's comprehensive spending review calls for £40m worth of savings by the Royal Mint over the next four years. The first coins to be affected are the 5p and 10p piece.

Five pence coins

The new coins will go into circulation from April 2011.

Debased coinage

The decision to change the composition of new coins has been driven by the rising price of copper. This has gone up sharply since 2009, due to increased demand from developing economies, such as China and India. High copper prices make coins more expensive mint. The UK's current 'silver' coins are cupro-nickel. The Royal Mint plans to replace these with steel coins, with nickel plating. They will look the same but be cheaper to make.

Bringing down the value of metal used in coins has a long history. The Romans did it to the silver dinari, and in sixteenth century England Henry VIII was notorious for debasing the coinage- ultimately unleashing a wave of inflation.

New coins         

George Osborne's new 5p and 10p coins are not expected to cause inflation, but they will bring problems for vending machine operators and local councils. This is because they will be slightly thicker than the current coinage, at 1.9mm, rather than 1.7mm. The difference is enough to mean that the new coins, due to go into circulation from April 2011 onwards, will not work in slot machines and meters. These will need re-calibrating- an expensive and time-consuming activity.

Alternative ways to pay    

Coins are still used extensively for everyday payments, but the latest initiative might accelerate the trend towards alternative methods of payment. The Payments Council reports that over half of transactions currently involve cash, although 80% of these are for under £10. New 'wave and pay' technology, also called contactless payment, presents an increasingly viable alternative for these low-value exchanges. For larger transactions debit cards are already gaining in popularity.

pound coins

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