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. Last Updated: 07/27/2016

One-Kopek Coin Faces the Ax

MTEconomists say getting rid of the one-kopek coin won't have a big impact.
The country's state-owned mint is considering abolishing the one-kopek coin in a bid to save on production costs, a senior official said.

Arkady Trachuk, the head of Goznak, the government agency that produces banknotes and coins, said in an interview with Izvestia last week that it was looking at ways to produce coins more cheaply, given the recent spike in metal prices, in response to a request from the Central Bank.

"We could make the decision to round up prices to 10 kopeks," he said, noting that there were a number of other proposals on the table, including the use of cheaper metals. "Where are kopeks [still] required here?"

Goznak will send its proposals to the Central Bank within two months, Trachuk said.

The agency has, however, been slow to adopt this measure, chiefly because of the perception that such a move would provoke. It would lead to a slight increase in prices, the official said. "For that reason, we haven't made a decision on this yet," he said.

But economists said the changes would have little practical effect.

"If they are get rid of just one kopek, it will not have a big impact. It has become so small, and inflation is on the rise," said Tatyana Orlova, an economist at ING. "Many shops have [already] rounded up their prices. ... So if they take [the single] kopek out of circulation, it should not affect prices greatly."

Analysts said the government should proceed with caution in any significant moves on the ruble, given the population's fragile confidence in the national currency.

Rumors of a potential redenomination of the ruble have been swirling in the last couple of months. Analysts say this is partially because there was a 48 percent increase in the money supply last year.

The government also printed new banknotes, including the new 5,000 ruble note, which evoked memories of the 1990s, when the Yeltsin government introduced larger-denomination notes shortly before chopping three zeroes off the ruble.

"If I were a monetary authority, I would not do anything that could be interpreted as a redenomination by the population," Orlova said. Fears of a redenomination mean "that people stop saving, and they try to spend, and the economy is already quite overheated and inflation is on the rise. The Central Bank would probably want to wait for the time when inflation has gone down a bit."

Trachuk dismissed the rumors as "nonsense," echoing President Vladimir Putin's denial last month that the government had any intention of considering redenominating the ruble.

Trachuk also said the mint plans to recall old banknotes, based on recommendations from Interpol that banknotes be removed from circulation every seven years to clamp down on forgeries.