Business leaders welcome BOJ's decision to demonetise 'red money'

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Business leaders welcome BOJ's decision to demonetise 'red money'

Sunday, October 15, 2017

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KINGSTON, Jamaica (JIS) — The Bank of Jamaica's (BoJ) decision to demonetise the one, 10 and 25-cent coins is being strongly supported by several business leaders.

The BoJ, in a statement, cited decreasing demand and high production costs as the principal reasons for this decision, and for opting not to manufacture new ones for issuance to the public to replace those now in circulation after their withdrawal.

Having obtained approval from the Finance and Public Service Ministry, BoJ said the next step, in keeping with the Bank of Jamaica Act [section 16(1)], is for the measure to be gazetted at which time three months' notice will be provided.

The bank, however, said that at this stage, it anticipates formal demonetisation of the coins by the first quarter of 2018.

This means that the one, 10 and 25-cent units will no longer be legal tenders, thereby making the $1 the lowest denominated coin in circulation.

Additionally, the $1 along with the $5, $10 and $20 will be the only coin denominations issued by the Bank.

Against the background of a fall in the cumulative demand for the one, 10 and 25 cent coins from 14.2 to nearly zero per cent and production costs ranging between $1.54 and $1.96 for each unit, based on BoJ review conducted between 2005 and 2016, Jamaica Bankers Association (JBA) President, Nigel Holness, said the decision and timing of the exercise are “absolutely on point.”

“Based on the trend that we have seen (where) persons simply discard these coins, it made sense for the BoJ to revisit its position, in terms of issuing these instruments in the market,” he told JIS News.

Noting that this has been the stance of other Central Banks in the Caribbean, and other countries, in relation to underused, low denomination currency, Holness, who is also Managing Director of CIBC/First Caribbean Bank Jamaica, said there has been a tendency by persons, over time, to deposit the coins in a piggy bank or toss them in the car or a drawer in the office or at home.

As such, he said usage has been “very minuscule”, unlike the $1 coin which he points out “is still heavily used and would outweigh the need for pulling that unit.”

The BoJ indicated that while it is no longer “economically viable” to manufacture the current $1, which attracts a $2.30 production cost for each unit, the demand for the coin remains “heavy”, at almost 50 per cent.

The bank said while it does not intend to withdraw such a heavily used denomination from circulation, “we also do not intend to keep producing a non-cost effective coin.”

In this regard, it said the unit's design is being reviewed with a view to using less expensive materials to manufacture it.

Holness, however, does not anticipate any fallout from the withdrawal of the targeted coins. He said in situations where the transactions involve notes and coins, “you would either round down or up to the nearest dollar.”

“So if it is under $0.49 you round down and if it's over $0.50, you round it up to the nearest dollar,” he explained.

This is consistent with the recommendation of the BoJ, which indicates that a loss on one side should be compensated with a gain on the other while assuring that any possible effect on inflation “should be negligible”.

Additionally, Holness pointed to alternative options to cash payments such as credit and debit cards which, he points out, will continue to be settled using the exact amount billed by a merchant.

Meanwhile, he encouraged people to utilise the BoJ's redemption facility to either return coins in their possession directly or donate them to charitable organisations to so do.

“There is a substantial amount of coins out there in the public's hands which I believe can come to good use and it's a great opportunity for organisations to generate some form of revenue. I know this has been done in many other countries and it encourages persons to contribute,” he stated.

While acknowledging that in real value the one, 10 and 25-cent coins are “very small”, Holness contended that “every little makes a lot”.

“So if we can collectively, give the coins to these charitable organisations, it would be a great opportunity for persons to just give back. It takes nothing out of you to just go take out those coins, wherever they are, and give them to these folks to package and send them in. It's a great way of giving back to the community,” he added.

For his part, Immediate Past President of the Jamaica Chamber of Commerce, Warren McDonald, endorsed the BoJ's decision, arguing that “if the coins are not being used and are costing the Central Bank, millions to produce, then I don't think that their continued production is the most efficient way for the (BoJ) to utilise its resources.”

He, likewise, does not foresee any fallout from the withdrawals, pointing out that “the Central Bank did its research before coming to this conclusion; so I don't see any negatives arising from it and it will, in fact, save money.”

Small Business Association of Jamaica President, Hugh Johnson, said his organisation commends the BoJ on the decision, which he describes as more cost-effective, adding that “it is long overdue.”

“This should have been done long ago because, for many years now, persons were not able to issue those coins to merchants. Places like the supermarkets were not taking them…nobody was.

“Since it is costing more to produce the coins than their actual value; and since it has been established that they are not being used and seem to just be lying around, we applaud the move to withdraw them as this will result in savings to the country,” Johnson told JIS News.

Chief Executive Officer of Honey Bun Limited, Michelle Chong, supported the BoJ's position pointing out that “based on the value of those coins, it's not worth having around”.

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