The withdrawal of 50-heller coins and its possible impact on prices

On 31 August 2008, 50-heller coins will cease to be legal tender. The reason for this measure is that small coins have ceased to fulfil the function of circulating currency. Keeping the 50-heller coins in circulation was causing the central bank and commercial banks and retailers to incur considerable costs.

Retailers have two options for dealing with this. They can round off all their prices to the nearest koruna or they can leave prices unrounded and only round off the cost of the overall purchase. The experience with the withdrawal of the 10-heller and 20-heller coins in 2003 suggests that most retailers will only round off the cost of the overall purchase.

Based on this experience, the maximum price impact of the withdrawal of 50-heller coins has been estimated under following the assumptions: (i) all items priced less than CZK 5 will be rounded up to the nearest koruna; (ii) for items priced between CZK 5 and CZK 50, 30% of retailers will round up to the nearest koruna, while 70% will only round off the cost of the overall purchase; (iii) items priced over CZK 50 are already rounded to the nearest koruna; where this is not the case, it is for marketing reasons and the price will be not rounded even after the 50-heller coins have been withdrawn. Under these assumptions, the maximum impact would be 0.24 percentage point (see Table 1). The actual impact is very likely to be lower and barely identifiable in the natural volatility of prices. This can be assumed among other things based on the experience with the impacts of the withdrawal of small coins in 2003, when neither actual inflation nor the inflation perceptions and expectations of economic agents were significantly affected by this step.

Simultaneously with the withdrawal of 50-heller coins, 20-koruna banknotes will be withdrawn due to rationalisation of currency issuance and money circulation. These banknotes have gradually been replaced by 20-koruna coins, so no price impact can be expected from their withdrawal.

Table 1 (Box) Maximum impact of 50h withdrawal

The estimated maximum impact of the withdrawal of 50-heller coins on inflation is relatively small

Price range of items 0-5 CZK 5-50 CZK Total
Weight in consumer basket (in per cent)a)  0.8 28.4 29.2
Average price (in CZK)a) 2.50 25.70  
Average price increase rounded up (in CZK)b) 0.50 0.075  
Average price increase (in per cent)b) 20 0.3  
Max. impact on inflation (in perc. points) 0.16 0.08 0.24

a) CNB estimate
b) CNB maximum estimate