Coinage and inflation

When researching my recent post about the probable demise of bronze (copper-plated steel) coins, I came across a curious fact.

The halfpenny coin was abolished in 1984, and there had apparently been a debate for some time about whether or not to let it go.  What surprised me was that one of the arguments against its abolition was that it would cause inflation.  Anyone who argued that must have known virtually nothing about economics.

Inflation is a trend rise in prices over a period of time, and equally the decline in the value of money over the same period of time. It has everything to do with supply and demand, and nothing to do with coinage.

Suppose we remove bronze from circulation.  Clearly everything has to be priced in multiples of five pence.  The pint of milk which today costs 49p would need to cost either 45p or 50p; the bar of chocolate which today sells for 59p would need to cost either 55p or 60p; and the loaf of bread which today costs 89p would need to cost either 85p or 90p.

Let us suppose that in every case the price is rounded up - which is unlikely.  The result would have no impact whatever upon inflation.  People would respond to the increase in price either by buying less milk, fewer bars of chocolate, and fewer loaves of bread; or by buying them in the same quantities as before but paying slightly more.  Let's face it, a penny extra on the price of a few items is not going to break the bank.

If people buy less of the given items, then the retailers might want to cut the price to stimulate demand.  By contrast, if people buy the same amount of the given items but pay the same, then they may choose to spend less on other items, and so on.  There is no reason to think that inflation would be affected.

Whether or not bronze coins are abolished should be decided on the basis of whether or not those coins are still useful, and not on irrational comments about inflation made by people who do not understand economics.

As I said in my previous post, the fate of coinage is determined by inflation, not vice versa.