Currencies: The Phenomenon Of Disappearing Coins

The Mogambo Guru - Wed 11 Jul, 2007

The phenomenon of disappearing coins must be happening almost everywhere, too, as all currencies are being debased by their central banks, and coins with a low, fixed denomination on them are doomed as the buying power of the coin falls below the melt value of the metal in the coins. The metal in the Canadian penny is worth so much more than the one-cent face value of the coin that pennies are, just like in India, being hoarded. To make up the shortfall, the Royal Canadian Mint was forced to increase production of pennies to 1.4 billion last year, enough pennies to represent "63 percent of total circulating coin production."

Junior Mogambo Ranger (JMR) Ben writes that we
can witness "Gresham's Law in action, and what
other countries will be facing with this rampant
worldwide inflation."

In case you forgot, Gresham's Law is popularly known as,
"Bad money drives out good money." In effect, people will
hoard valuable money but will spend (and thus get rid of)
money that is relatively more worthless.

The case in point that JMR Ben thoughtfully provided was
a link to the news.bbc.co.uk report titled "Sharp
Practice of Melting Coins." It seems that inflation in
prices in India (due to the Indian central bank creating
so damned much money and credit every freaking day, just
like all the other stupid central banks of the stupid
world) has made the rupee almost valueless, but the
little bit of metal in the coins is so valuable that
"Millions of Indian coins are being smuggled into
neighbouring Bangladesh and turned into razor blades."
How much more valuable is the metal in the coin? The
conversion ratio is a one-rupee coin can be made into
seven razor blades, worth 35 rupees!

The natural result of Gresham's law in action is "an
acute shortage of coins in many parts of India."
Naturally, coping mechanisms spring up, such as,
"Shopkeepers ask customers to buy more to make it a round
figure so that small change does not have to be given
out", shopkeepers giving "toffees or cigarettes to make
it a round figure", and even issuing cardboard scrip.
The most surprising, astonishing and terrifying thing was
the actual, in-your-face admission of further government
debasement of the money! My eyes pop from my head in
disbelief as I read that "The mints took corrective
action - scaling down the metal content of the coins -
but that has not stopped the shortages."

If the Indian mints wanted to take "corrective action"
against the inflation that is rendering the coins
worthless as money, they would storm the central
bank of India and stop them from creating so much
money and credit!

And it is not just Indians, but according to a fax from
Junior Mogambo Ranger (JMR) Andrew G. of a Globe and Mail
article, inflation in Canada is making them think of
ditching the penny. The metal in the Canadian penny is
worth so much more than the one-cent face value of the
coin that pennies are, just like in India, being hoarded.
To make up the shortfall, the Royal Canadian Mint was
forced to increase production of pennies to 1.4 billion
last year, enough pennies to represent "63 percent of
total circulating coin production."

This phenomenon of disappearing coins must be happening
almost everywhere, too, as all currencies are being
debased by their central banks, and coins with a low,
fixed denomination on them are doomed as the buying power
of the coin falls below the melt value of the metal in
the coins.

And sure enough, the article notes that "Australia
[stopped] making one-and two-cent coins in 1990. New
Zealand stopped making them three years before that.
France, Norway and Britain are among the other countries
that have eliminated low-denomination coins."
So inflation is hitting everywhere, literally rendering
money increasingly valueless, and yet the governments
allow the banks to just keep printing more and more of
it! This is insane!

Bill Bonner of DailyReckoning.com doesn't want to talk
about what or who (looking directly at me) is insane or
not, but astutely notes that "if you could really get
rich by printing more currency, Zimbabweans would all be
as rich as Midas, since the Mugabe government runs the
presses night and day."

And to underscore this point, Junior Mogambo Ranger (JMR)
Phil S. forwarded the latest Cathy Buckle letters from
Zimbabwe. She lives there, coping with the highest
inflation (over 5,000% at last estimate) in the world,
the most stupid, corrupt and demonic government in the
world, and where prices are now (according to Ms. Buckle)
"going up by an estimated 10 percent every day."

But Ms. Buckle does not want to be drawn into a boring
discussion with The Mogambo about inflation in the
theoretical abstract, but sticks to the horrific
specifics and says, "Because of the oppressive, iron-fist
regulations from Harare, individuals are only allowed to
withdraw one and a half million dollars at a time from
the bank - even if they have just deposited a hundred
times that amount the same day. The bank charges a
'handling fee' for the withdrawal of amounts of one and a
half million dollars or less, but you cannot withdraw
more without applying for permission from the Reserve
Bank in Harare."

Aside from the fact that the Zimbabwe dollar and the U.S.
dollar were on a rough parity a decade or so ago, "To put
all these figures in perspective," she explains, "you
have to stand in a queue in the bank for four days in a
row - each day drawing out the maximum amount, each day
paying the 'handling fee' - in order to purchase one tank
of fuel for your car." One tank of gas!

And if you want to hear some good news of belated smarts
as pertains to money and how fiat money in the hands of
an irresponsible government always becomes worthless,
Julian D.W. Phillips in The Gold Forecaster newsletter
notes that "Italy has no plans to sell any gold, which is
unsurprising given the very poor history of the Italian
lira. They too have seen several currencies come and go
in the last one hundred years, so they have few illusions
about the joys of compound interest. After all, adding
noughts to a currency doesn't make them more valuable;
it's the buying power that counts." 

Regards 

The Mogambo Guru
For The Daily Reckoning 

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