Coining it

[Dave Birch] What a coincidence! George Selgin’s book arrived a few days ago. I put it on my next-to-the-sofa pile, looking forward to starting to read it over the weekend sometime. It reminded me that I’d seen an article of his in the Wall Street Journal a little while ago. I’d put it to one side because it was about the current coin shortage situation in Argentina, which relates also to the period of British history covered in his book. It’s hard to imagine a time when trade and industry were held back because there were too few coins in circulation, but that’s exactly what the situation was in England during the industrial revolution. Employers needed coins to pay wages and couldn’t get any, customers couldn’t pay in shops, and the economy suffered. What does this have to do with Argentina? Well, there’s a coin shortage there at the moment.

Argentina’s central bank blames it on “speculators,” meaning everyone from ordinary citizens, who stockpile coins, to Maco, the private cash-transport company (think of Brinks) that repackages change gathered from bus companies to resell at an 8% premium. But those explanations ring false. “Black marketeering” would not exist if coins were easy to get in the first place. After all, Argentines could just as easily hoard razor blades or matchbooks. Yet there’s no shortage of those. What’s so special about coins? The answer is that coins are supplied by the government alone. “Put the federal government in charge of the Sahara desert,” Milton Friedman said, “and in five years there’d be a sand shortage.” If Argentina wants to end the coin shortage, it ought to give up its monopoly.

[From Opinion: Argentina Is Short of Cash – WSJ.com]

This is a point well made and because we’re going to be discussing the apparently crazy idea of private-sector currency at the CSFI at the end of the month I’ve been keeping an eye out for stories to bring up at the round table. If you have any more, do send me the links.

Somewhat bizarrely, while I was typing up this blog post, I spotted an item on Chris Skinner’s excellent Financial Services Club blog that I assumed he’d put in as a joke, sourcing from The Onion or The Daily Mash. But, astonishingly, it came from The Times and is, as far as I can tell, true. The government is so broke that it is going to sell the mint.

THE government is pressing ahead with plans to sell a string of state-owned organisations as part of a privatisation drive to add £35 billion to the dwindling public purse. The chancellor, Alistair Darling, has appointed Rothschild to prepare the sale of the Royal Mint.

[From Now Alistair Darling puts the Mint up for sale – Times Online]

Now, I’d certainly be interested in buying the note-issuing department of the Bank of England, the most profitable nationalised industry in British history. But I’m not so sure about the mint though. For a start, they make products that no-one wants.

The Royal Mint estimates that 6.5 BILLION one penny coins are missing presumed down the back of the sofa in the UK… 38% of the all the pennies ever issued are unaccounted for. This is not too surprising, given another UK poll result: 60% of people wouldn’t bother to bend over and pick up a penny in the street. What a waste.

[From Digital Money Forum: Extending debit]

But who would want to buy the mint? I don’t know what the up-to-date figure is, but last year when the price of metals was up yet again, it took 1.65p-worth of metal to make a 1p coin. In order to make a living you’ll have to charge 2p for a 1p coin and not even our government would be stupid enough to buy any. Would it? And if it did, for how long? I realise that in our quaint technological backwater it may take some time for M0 to start to fall in absolute terms, but in other countries that isn’t true. Just as I recently pointed to the contrast between the British government’s “Carter Report” which set out the aspiration of 2Mb/s second broadband in the UK by 2012 at a time when the Korean government has decided to install a universal gigabit infrastructure (that’s five hundred times faster), so I wonder if we shouldn’t try a little harder to emulate Korea in the payment stakes.

But the government believes the mobile phone is the key to the future – a payment system that could finally lead to the long-heralded demise of notes and coins.

[From BBC NEWS | Business | S Korea ready to hang up on cash]

Don’t sell the mint: shut it down. Start by getting rid of all “copper” (well, copper-plated steel) coins, then get rid of all 5p and 10p coins for 2012 (just in time for our “1948 Welcomes You” heritage Olympics) and dump the 50p, £1 and £2 coins in 2018 at the same time as cheques are scrapped. And the best bit about this plan is that has a fundamentally green core that will make it popular with the media…

Another way to help the environment even more might be to abolish pennies and nickels altogether. Give people five years to turn them in if they want to, then rescind the law against melting them down. Hey presto, all of the 150 billions unused coins will either be dumped in Coinstar machines or melted down to make more useful items.

[From Digital Money Forum: A few coppers]

Not only the best digital money blog but the most environmentally conscious.

P.S. Before anyone e-mails to tell me, yes I know that The Royal Mint makes stuff other than British coins, such as coins for more than 100 countries around the world, medals and more. I was just making a point.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]