Lithuania Advocates for Phasing Out 1 and 2 Cent Coins by 2025
Phase-out Proposal by the Bank of Lithuania
The Lithuanian Ministry of Finance has recently shown its support for an initiative proposed by the Bank of Lithuania (LB) to phase out 1 and 2 cent coins by May 2025. This initiative also includes rounding the final amounts of goods and services to the nearest 5 cents. However, the ministry has put forth several suggestions to improve the proposal for a smoother transition.
Proposed Changes to the Initiative
The Ministry of Finance recommends that the regulations regarding rounding should not be included in the law regarding the introduction of the euro, but in a separate law that comprehensively regulates rounding. This law should include specific cases, exceptions, and principles. Additionally, the Ministry of Finance suggests that the LB should be responsible for advising market participants and ensuring proper implementation.
Another proposal made by the ministry is that the administrative offenses code be supplemented with responsibility for violating these regulations. This means that any entity that does not comply with the rounding regulations could face penalties. The ministry also suggests consulting with the European Central Bank for an opinion on the project, to ensure it aligns with the broader financial policies practiced in the EU.
Consideration for Mixed Payments and Legal Entities
Considering that customers may opt for mixed payments, which is a combination of cash and non-cash payment methods, the ministry proposed that the law should clearly define whether rounding will be applied in such cases. Furthermore, it is proposed to consider applying rounding not only for transactions made by individuals but also to those made by legal entities.
Amendments to the Law
On the last day of the spring session, the Sejm, the lower house of the parliament, accepted amendments to the law on the introduction of the euro and the law on financial accounting. These amendments provide for the rounding of the final amount of the basket of goods and services when paying in cash. However, lawyers working for the Sejm criticized this project and submitted dozens of comments. They believe that the proposed changes should be regulated in a separate law, and the project lacks an assessment of the consequences of not complying with the new solutions.
Rounding Already in Practice in Lithuania
In Lithuania, rounding is already applied when paying for fuel. Fuel prices are set to three decimal places, and payment at the cash register is rounded off to two decimal places. In six EU countries, the final amount of goods is already rounded to eliminate 1 and 2 cent coins. This practice is proposed to be expanded and regulated by law in Lithuania.
Impact on the Economy
Phasing out 1 and 2 cent coins and implementing rounding could have several impacts on the Lithuanian economy. Firstly, it could result in significant savings for the LB as it costs approximately 4 million euros annually to maintain these coins in circulation. Furthermore, most of these coins drop out of circulation after just one transaction, leading to inefficiency in the monetary system. Hence, the initiative could result in a more efficient and cost-effective financial system in Lithuania.
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