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Rounding is not to be feared

Author

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  • Erika Leszkó

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

Nearly one and a half years have elapsed since the MNB withdrew 1- and 2-forint coins from circulation on 1 March 2008, which simultaneously saw the rule on rounding to the nearest value of 5 enter into force. While it was perfectly clear from a professional perspective that rounding would make cash payments easier on a daily basis, there was nevertheless strong concern surrounding the introduction of rounding. The actual developments, however, have not underpinned preliminary fears. The withdrawal of 1-and 2-forint coins did not bring about an inflationary effect, due to the symmetrical direction of the rounding for final amounts payable only, and the application of new rounding rules did not cause any particular difficulties. It does not come as a surprise that the use of rounding did not cause any disruption in the economy, as rounding has a more than decadelong tradition in Hungary on account of the withdrawal of the filler in the 1990s. In this article, we will present the reasons and the economic rationale behind the introduction of rounding rules with the help of Hungarian and numerous foreign practices. As Hungary’s legal tender will hopefully be the euro within a few years, the experiences of euro area countries in the practice of rounding will be examined more closely.

Suggested Citation

  • Erika Leszkó, 2009. "Rounding is not to be feared," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(2), pages 14-21, July.
    • Handle: RePEc:mnb:bullet:v:4:y:2009:i:2:p:14-21
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    File URL: http://www.mnb.hu/letoltes/leszko-angol-0908.pdf
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    References listed on IDEAS

    as
    1. Robert Whaples, 2007. "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 139-146, Winter.
    2. Hans Brits & Carlo Winder, 2005. "Payments are no free lunch," DNB Occasional Studies 302, Netherlands Central Bank, Research Department.
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    More about this item

    Keywords

    rounding rule; withdrawal small change; elimination small denomination coins; 1- and 2-forint coins; filler; 1- and 2-cent coins; penny.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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