Change Our Currency's Denominations? - My Latest Coins Rant.

This -- in short -- is merely an urban legend. Re-denominating currency does not de-value money or cause inflation. Full stop.

Canada and the UK did extensive studies on this, and any changes in perceived value vs actual value were greatly exaggerated but not realized, and any changes in actual value were due to the normal course of inflation (which is currently working against us regardless).




That's another viable option, and a good point about the whole "rounding problem" raising prices (which is another urban legend that's a bit sticky).

The biggest advantage of the dollar, half-dollar, and dime combination is that it rounds cash to a more useful size to do business with. A nickel, even if it were made of steel or lint, would suffer from the same problems with cost and circulation today.

The biggest advantage I can see for the dollar, quarter, nickel is that some people can put off retrofitting their machines for another decade or two. But that cost will have to be borne sooner or later when 5 cents inflates to worthlessness.




Take a penny leave a penny dishes only underscore exactly how worthless pennies are. :-)




The full savings take several years to realize. This is why we need to start on this sooner than later, because when we *have* to, we will have missed out on all of that savings *plus* we will have to endure the harder years of transition. An ounce of prevention is worth a pound of cure.




Preach it. :-) I would be all for more bullion in circulation... I just wish that the prices of commodities were a bit more stable and not prone to jumps.

"I would be all for more bullion in circulation... "
Uhhh, of course you are. You're heavily invested in the idea. I tend to think that bullion represents savings and am content with the way things are.

Loonies weighing us down? Nope. That theory only works when you're used to heavy American quarters because that's the only coin with value. ONE loonie replaces FOUR quarters weight-wise; it's very simple. You're not going to get four $1 bills in change - you'd instead get two toonies.

Loonies CAUSing inflation? Nope. Canadians consume American products, therefore the shipping to this side of our imaginary line causes prices to jump, which is why you find lots of bordercrossers out just to shop while completely ignoring fuel costs. I'll believe this theory when we see a $5 coin, which would be overkill. We had to replace our $2 bills and with the success of the $1 coin we added the $2.

I *think* my point was missed (or maybe I am missing yours through misunderstanding your usage of "re-denominating?). I believe it was the psychological affect of a dollar now being just "pocket change" that was a driving factor in price increases. And considering I was there at the time and watching it happen, the "legend" has a solid base. The psychological factor was a very real thing and prices did, initially increase in a short amount of time - moreso than regular inflation over time would bring.

This was a time period when I was shopping in Canada quite a bit b/c the US dollar would buy a lot more due to exchange rates. The prices I started having to pay in Canada, after the Loonie came out, were raised in a short amount of time compared to normal inflationary rates over years of shopping there.

Time (especially) and governmental studies - used to support an action they produced - tend to turn fact into "legend."





Yes, I agree they show the penny does not have a lot of buying power, but the point I was trying to address is that people DO still use pennies (both retailer and consumer in non-metropolitan areas. BTW, I live in a populated areas, but the mindset is still one that I have shocked a lot of people (not just old people!) b/c I can start my car with my keychain! So paying with smart phones is still something out of Star Trek for them - hence physical money/coins are used. And I am only about 1.5 hours from DC.




Again I guess I was not clear enough. My point was that the numbers for how much the government will save look good on paper. But the actual, day to day costs will likely not save as much as they think it will.

During one of the more intense discussions of this on CCF, I did a reading of the government studies. I was looking for where they had included transportation costs specifically b/c of what the Canadian banks had griped about back in the day when they were being forced to give up their paper. The Canadian bankers said costs were simply passed onto the consumers.

The reality of the situation was:
1. Government claims large savings of taxpayer money - a fact that looks good politically.
2. Businesses such as banks and those who deal with coins/money had increased costs in bulk handling (shipping less value in metal for greater cost) and raises prices to compensate.
3. The consumer pays more money for products/services (besides the taxes he already has paid - that the government's project is "saving").

...typical cycle.

Overall, like I said, I believe dollar coins may save money - but I am not sure a competent study is possible to actually find the economic impact to consumers. I do not believe, especially with inflation, that the numbers of "saved" taxpayer dollars will be as monumental as the studies (using taxpayer dollars!) have shown since the taxpayers will have to cover more costs passed onto them.

When one starts to think of transporting 1 million of these pieces of metal vs 1 million pieces of paper, the immediate cost adds up. Over time the cost of having to replace the paper sooner, and then transporting it, would eventually have to catch up with continual shipping of the metal. But how long would this "catch up" take, and how much would the actual "catching up" be affected by the inflation? Its more complex than the studies show..

Earle42 - did you factor in the exchange rate to your observations? When I was still getting $1 bills in Canada, the exchange rate rate was around $1.35 CDN to $1.00 US. The first time I saw loonies and toonies it was around $1.20 CDN to $1.00 US and now it's around 1 to 1 with the Canadian Dollar a bit more valuable than the U.S. dollar. That's a big change!

One thing I can't help but thinking about, people complaining about the whole pocket change phenomena. I know there never was any 'pocket change' in my grandparents generation. They often talk about how all their money was in a coin purse. My grandmother dropped a penny one time when she was younger and she spend the whole day searching for it (and she found it too). I am pretty sure that for most of their lives my parents didn't have much of a pocket change concept. It seems to me the whole concept of 'pocket change' is a by product of inflation and if the coin values were sorted out the issue of 'pocket change' would disappear too.

Well said hesgut. Although I would like to see change, I am not holding my breath that anything will change as far as coins and paper money in the U.S. Each successive study is subsequently ignored and after a few years a new one is done. It just goes on and on.

None of that "psychological factor" has any basis in psychology or on the economics of Canada at the time. There is no evidence for it outside of anecdotes. Canada's economy and the United States' were changing before and after the transition, and the inflation rate (and perceived inflation rate) would have remained the same whether or not the Loonie was adopted.




What can a penny buy today at any local shop anymore? :-)

The extensive studies done in Canada before they eliminated the penny showed that most businesses, metropolitan and rural, would love to do away with the coin because it's a pain worth less than the cost of handling. The singular reason holding them back was the belief that customers wanted exact change back. However, customers would seldom to never actually pay with pennies with them to replenish their stores, nor would they take them to banks. They'd just sit about in jars or get lost or thrown out.

Hence the one-way flow problem.




It certainly is more complex, I agree with you.

(Which is also why it's such a fun thing do debate. :-) )

For example, costs are now lower in Canada because now that the Loonies are actually in circulation, and that circulation isn't as one-sided, there is a significantly reduced need for coins orders and shipping coins back to the central banks.

If coins are worth enough to move around on their own, where we may need to pay to get them out there initially, we don't need to continually pay again and again to have them shipped around. Consumers will do that on their own.

Or so we have observed in other countries. :-)





"The only thing that saves us from the bureaucracy is its inefficiency." - Eugene J. McCarthy :-)




The problem when it comes to changing something such as this is that there *are* going to be some arbitrary decisions.

Why do we have a 25 cent piece and a $20 bill, and yet no 20 cent piece (currently) and no $25 bill?

Money simply needs to be broken up into pieces that are large (or small) enough and durable enough to do business efficiently. Right now most of our coins on the lower end of the spectrum are getting far too small, and fairly soon (in the realms of decades) we may have to make some pieces bigger.

With all things, however, the Perfect is the enemy of the Good.

We need to adopt a Good solution. It might not be the drastic overhaul that I'm proposing, but we can't afford a poor series of kludges and half-baked "quick fixes" either.




Danke. :-) Heheh nothing like a fun topic to start things back off with a bang. :-)