Over at the Wall Street Journal there is an interesting article about coin shortages - one historical (Britain) and one happening presently (Argentina). The author suggests that Argentina should solve the problem the same way that Britain once did.
Better not think what could happen if a private firm starts issuing coins…
The reason there’s a shortage of coins here is rampant inflation. The solution to the problem is self-evident – not private coinage but private money.
How can inflation lead to coin shortage? Or is it because the government does not make enough coins?
One possible reason is that coins are worth more as metal than as currency. The smallest coins here are 1 cent and 5 cents coins. 1 hundredth of a peso is ~0.0025 US dollars. I don’t think that 1 cent coins can be manufactured for that price, so small coins don’t make much sense. Bigger coins, say, 50 cents ones are still around though…
Anyway, as the currency is being devalued more coins are needed to carry the same exchanges, but manufacturing new coins is expensive, so…no new coins are available.
Hmm, this is very interesting. I can see that the U.S. is going to have a penny shortage very soon. It already costs more to mint pennies than they are worth. Once the metal in the pennies becomes valuable enough, I can see people melting them to be sold for other things, or selling them back to the minters to make them back into coins.
Juan,
As an aside, is the inflation there really getting bad right now? I was in Buenos Aires all last May and it didn’t seem so bad (I left right before all the hoopla with the food shipments to the city being blocked). Is the exchange rate still around 4/1 usd?
Also, from an Argentine perspective, would a move to a gold standard currency be a good move? There seemed to be an excess of gold when I was there, though I imagine the same thing would happen as when you pegged the peso to the dollar; ie everyone would hoard gold.
Well, if judged by local standards the price increases are not too bad…yet. Maybe 30% per year…
Yes, compared to the hyperinflation of 1989 the current one could be seen as more or less tamed, but still.
Yes 3.5/1. However despite the fact that the exchange rate is fixed (sort of) prices in pesos keep on going up. Food is always raising for instance.
I suppose it would be good, but it’s totally unlikely…unless you know something I don’t ? =]
You mean jewelry ? I’m don’t see an excess of gold, but I’m not sure what you mean.
What’s your objection to private coinage? What distinction are you drawing between “coinage” and “money?”
I’ve no objection to it, except that in this particular case it makes little sense IMO. Minting 1, 5 and 10 cent coins probably costs more than 10 cents…Bigger coins could be minted privately I guess and that would solve the problem of people who want to pay the bus fare (coin operated machines) using coins. But since the coins are denominated in a currency controlled by the gov’t, the coins will just keep on losing value, so ever increasing numbers of coins will be needed, which means that private coinage is just a short term partial solution.
Also, Selgin talks about private coinage in England at a time when there was a gold standard of sorts in place – which obviously is not the case of argentina today.
I thought that by coinage it was meant the minting of small coins. Money on the other hand is the common medium of exchange.