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Argentina Faces Coin Shortage
By Richard Giedroyc

One of the current problems with the U.S. economy isn't that people don't have money, but that due to economic uncertainty they don't want to spend it.

In Argentina the problem is that people have coins, but because coins are so difficult to acquire they don't want to spend them. Thus, Argentina has a coinage shortage regardless of just how many coins the government places into circulation.

In fact, the Argentine government placed what a Feb. 4 British Broadcasting Corporation news article described as "millions of dollars in coins" into circulation in October 2008, only to see the coins hoarded rather than used.

The first thing the government did was to outlaw the black market through which so many of the badly needed coins were being sold at a premium. It would have been a good idea if it had worked, but just like Prohibition in the United States all the legislation did was drive the thriving trade underground.

Since street vendors were reported to be earning between 3 and 10 percent on the value of the coins, the vendors simply began hiding the coins in pastries and sweets, then selling them openly in public disguised as such.

The bottom line, however, is that people need the coins not so much for use in commerce, but to vend a ride on transportation. For this reason Argentina President Cristina Fernandez de Kirchner recently invested $57 million in a new electronic ticketing system for the mass transportation system in Buenos Aires. This makes perfect sense, but why did it take so long for someone to think this way?

This won't completely solve the problem. Although the coinage shortage in commerce may not be as bad as that in the transportation system, reports indicate the shortage has encouraged merchants to round prices - rounding them up, not down. This, of course, is inflationary. Concerns regarding such rounding are one major reason why the United States has hesitated to do away with the lowly 1-cent coin denomination.

The currency system of Argentina currently consists of coins in denominations of 1, 5, 10, 25, and 50 centavos, as well as 1 peso, and bank notes in denominations of 2, 5, 10, 20, 50, and 100 pesos.

 



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