Sunday, June 26, 2011

$52m in Shrapnel's the Cost of Change

THEY were called ''shrapnel'' because they ripped the lining of trouser pockets and purses to shreds.

Some referred to them as ''Kemblas'', from Kembla Grange, rhyming slang for loose change.

It was the pragmatic treasurer Paul Keating in the 1990 budget who made the final decision to pull the 1¢ and 2¢ coins from circulation.

The Royal Australian Mint wanted to stop producing the coins because inflation had cut their buying power - and they cost too much to produce.

By February 1992 banks stopped handing out the copper coins. The Mint calculated that in the quarter-century since decimalisation, $79.9 million worth of 1¢ and 2¢ coins had gone into circulation.

When Mr Keating announced the coin cull on August 21, 1990, he added the hope that ''competitive pressures among the major retailers are such that they are likely to react to the change by rounding cash payments down to the nearest 5¢''.

Guidelines were issued by the federal government urging cash payments be rounded to the nearest 5¢ and 10¢. But consumer groups at the time said the move would allow unscrupulous retailers to jack up prices.

Authorities tried to ease public disquiet by releasing examples of how the rounding would work, in principle. An 11¢ or 12¢ item will go down to 10¢, they said, while a 13¢ or 14¢ item will rise to 15¢.

The chairman of the Prices Surveillance Authority at the time, Allan Fels, thought strong competition would probably result in all prices being rounded down. He even suggested it would be consumers who might try rorting the situation. ''For example, instead of buying $10 worth of petrol, customers may buy $10.02 and expect it to be marked down,'' he said.

Professor Fels said the authority would monitor retailers, although there were no legal penalties if shopkeepers rounded prices up.

Eric Risstrom, the then director of the Australian Taxpayers Association said ''only a fool would believe the political talk that some items would be ''rounded down'' to the nearest 5¢ below.

The then executive director of the Retail Traders' Association, Bruce Bevan, said he expected large supermarket chains would round all their bills down, but not all small shops, such as clothing retailers and corner stores, would follow suit. ''It may be feasible when you've got a big basket of goods but not if you're talking about a loaf of bread,'' he said.

Charities leapt on the withdrawal announcement, collecting the soon-to-be redundant coins. One man collected $15,000 in the small change for the urology unit at Sydney's Royal Prince Alfred Hospital.

It took a while for the 1¢ and 2¢ coins to disappear from circulation.

The coins, made with copper (97 per cent), zinc and tin, flowed back to the banks and were then sent to the Mint for recycling. Some of the metal was sold and some ended up in the currencies of nations including New Zealand and Fiji. The Mint had contracts to make their coins.

An unexpected side effect of the withdrawal was the ''money-box'' effect, in which a large volume of coins surfaced, particularly 5¢ and 10¢ pieces. This was caused by people emptying their money boxes on bank counters and handing in all their loose change.

In 1996 the Mint released figures showing the average Australian family was likely to be hoarding at least $10 worth of 1¢ and 2¢ coins. It reckoned more than $52 million worth of the unwanted change was sitting in empty jam jars in the back of drawers, fallen down drains, lost under sofa cushions or taken overseas.

In 2000, the copper coins were melted down and a pinch of silver added to make the bronze medals for the Olympic and Paralympic Games.