By Patrick Niceforo

Late last year, the Bank of Korea (BoK), South Korea’s central bank, announced its plans for a “Cashless Society,” which first and foremost means getting rid of coins by 2020. A proposed method for gradually removing coins from circulation is encouraging travelers in South Korea to deposit their change onto their T-Money cards, electronic travel passes that are used to pay for metro and bus fares. But while the BoK has reduced its annual expenditure on coin production by 200 million won from 2015 to 2016, it could do more. Similar to Canada ceasing production of its penny, South Korea could simply stop minting its equivalent of a penny, the 10 won coin.

The BoK issues won banknotes in denominations of 50,000, 10,000, 5,000, and 1,000 and won coins in denominations of 500, 100, 50, and 10. According to a recent study, only 8.5 percent of 10 won coins are in circulation, with the remainder sitting in jars or private safes in peoples’ homes. As of last year, the cost of producing the 10 won coin (0.009 USD) was reportedly twice its face value at 20 won (0.018 USD). Other sources such as KNN and Asia Economy, however, have estimated the cost of production to be as high as 40 won (0.036 USD).

Besides the fact that it costs more to mint a 10 won coin than it is actually worth, the coin’s value is so low that it has little, if any, purchasing power. At the current exchange rate, the 10 won coin is worth slightly less than an American penny. As a result, its only real use is when one needs exact change, which is rare since just 20% of financial transactions involve cash. Furthermore, given the coin’s low value, most coin-operated devices such vending and laundry machines do not even accept it.

In addition to Canada, many other countries such as Brazil, Australia, Finland, Israel, and Malaysia have removed their equivalent of a penny from circulation, primarily because inflation rendered the coin virtually useless. To compensate, many penniless countries round prices to the nearest 5 or 10 cents. South Korea could easily implement similar policies, especially since prices in Korea already include sales tax. In other words, consumers who pay with cash in South Korea can easily calculate how much one or more item costs before reaching the cash register since their final price is whatever is listed on the labels. Getting rid of the 10 won coin will not only make Koreans’ wallets lighter, it will actually expedite cash transactions.

It does seem like South Korea is naturally moving further away from physical currency, with more Koreans starting to use smartphone apps in lieu of credit cards. Nonetheless, achieving a cashless society could take some time, especially since cash discounts are common in the informal sector. Moreover, the gifting of cash is a cultural tradition in South Korea at weddings and during certain holidays. A small and cost effective step consistent with a cashless society policy could be to cease minting the 10 won coin. Many other countries have already removed the penny from circulation for these same reasons. Perhaps South Korea should, too.

Patrick Niceforo is a graduate student at the Middlebury Institute of International Studies and an intern at KEI. The views expressed here are the authors’ alone.

Image from YunHo Lee’s photostream on flickr Creative Commons.