Wednesday, June 27, 2007

Cardboard coins

In India, the one rupee coin is worth 35 times as much melted down. One rupee coins are thus rapidly disappearing from circulation, and private vendors have started making their own one rupee coins out of cardboard. Though cardboard is much cheaper than metal, cardboard coins will have the same problem of eroding value. Eventually, they'll just stop making one rupee coins, even out of cardboard, because they just won't have enough value to bother dealing with. I remember in Ukraine, during their hyperinflation, they stopped printing anything less than a 1000 kupon note (which was worth about half a cent), because no one used anything smaller.

Therefore, the question becomes, are coins worthwhile? If coins are worthless, and bills are just fine, we should get rid of coins altogether and use bills, and just stop printing the ones that few people use. If coins are a good and useful product, we should price them accordingly, and revise our currency values occasionally. The revaluation would be easy to determine: when the cost of the metal exceeds the price of the coin, change the price. I recommend making the old currency worth 1/5 of the new currency (we print new bills all the time anyway), and just give all the new coins partially gnurled edges to keep them separate while we pull the old ones from circulation. It would take a long time at 3% inflation to get back where we are now.

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