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Merchant Resolves Coin Shortage
By Richard Giedroyc

The British Royal Mint in recent history has concentrated on producing higher denomination coins at the expense of lower denominations. The result was that merchants began issuing their own tokens to allow commerce to continue unabated.

During the time of the American Civil War, virtually all metal coins were hoarded, creating a coinage shortage in this country. Merchants began issuing their own tokens to once again assist in the continuance of commerce. This time the merchants added something innovative - many of these merchant tokens advertised the name and address of the issuing entity.

Chronic coinage shortages have been reported all over the world in recent years. Such countries as India, the People's Republic of China, and Argentina are among those that for one reason or another simply haven't had sufficient coinage in circulation to satisfy the demand. In some of these cases enterprising locals have purchased and sold bulk coinage on the black market, making a nice profit in their wake. This practice, of course, is discouraged by the government. But unless these governments step up to the plate and solve the problem by producing more coins, the black market in small change will continue.

According to an April 23 Buenos Aires (Argentina) Dow Jones news report, "Critics of the Central Bank [of Argentina] charge that the coin sharks would have no reason to exist if it had properly measured and managed the demand and supply of money. At the end of the day, the buck stops with the monetary authority, they say."

The report continues, "But the central bank says it's doing all it can. It pumped 524 million coins into circulation last year, up from 463 million in 2007 and 160 million in 2006, and it minted 136 million new coins in the first three months of this year to bring the total in circulation to 5.3 billion."

A central bank official who curiously insisted on remaining anonymous, is quoted in the Dow Jones report as stating the blame should be pointed at "a black market linked to the private bus companies."

Bus companies in Argentina only accept coins, not tokens, credit cards or any other form of payment. The Argentine government has taken action on this accusation. During 2008 the government passed legislation prohibiting bus companies from selling coins for a profit that these companies accumulate. The government also encouraged these transportation companies to begin installing prepaid debit cards, but according to the recent Dow Jones report "little progress has been made so far." The bus companies had been charging a 3 percent fee to whomever they were selling their coins.

This government clampdown didn't work. In October 2008, a hoard of 13 million coins with a face value of 4.5 million pesos stored in barrels was seized by two of these companies. The trade quickly moved underground.

The government then passed a law forcing banks to exchange 20 pesos face value in Argentine bank notes for coins of the same value when requested so by any individual. The banks have ignored the law, even when fines have been imposed following complaints lodged by the public.

England had its merchant tokens and so did the United States, with advertising added to some of them. Well, now the Supermarket Chamber or Casrech in Argentina is going one step further. Casrech recently announced its more than 5,700 markets nationwide will begin issuing its own scrip as a substitute for small change. The public will likely clamor for this scrip rather than for Argentine coins because Casrech will redeem the scrip for 110 percent of its face value when consumers make future purchases using the scrip.

Think about it: not only does Casrech resolve the coinage shortage internally, but it encourages a captive audience. Who would want to shop anywhere else when you are virtually getting back more change than to which you were entitled!

Casrech admits it is trying to encourage customer loyalty, estimating Casrech can save its customers between 450 and 600 pesos (about $120 to $120 US) weekly once the cost of buying coins on the black market is calculated to the anticipated transactions.

Let's think about this from a collector's standpoint. If Casrech decides to issue different tickets periodically, some people won't redeem the scrip at all, but instead will collect it. Under such a circumstance the company can anticipate making even more money from unredeemed seignorage, the same seignorage the Argentine government would like to make from coinage production!

 



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