Shortage of coins, a blessing in disguise

My attention was drawn to a recent news item in the press, encouraging children to break open their piggy banks to end a serious shortage of loose change triggered off by the Central Bank's admitted stoppage of issuing small denomination coins due to the prohibitive cost of minting. So the Central Bank has become wiser at last! Let me hasten to add that the said news item holds motor garages making metal washers, coin vending machines and superstitious beliefs of people also as partly responsible for this apparent 'Coin vanishing trick'!

Interested readers and senior Central Bankers will recall that I brought up this issue in the print media as far back as in 2002. My concerns and suggestions expressed at that time, basically to withdraw coins below Rs. 1 from circulation did not bear fruition and the Central Bank went ahead issuing a series of small denomination coins ranging from 25 cents to One Rupee in 2005.

However, the Central Bank seems to have recognized my concerns at that time on the disproportionate minting cost, the lightness to the purse and the clear distinction in size among different denominations. The size of this new series of coins certainly gives the signal that there will not be another issue of coins since the Central Bank would fight shy to place an order to mint a size smaller than that!

As regards my proposal to demonetize the coinage below Rs. 1 by withdrawing such coins from circulation, the Central Bank at that time was of the view that it would entail changes to the legislation dealing with currency. Dropping that seemingly difficult proposal to the limbo of forgotten things, let us now consider the present coin shortage as a blessing in disguise and look for an effective and practical remedy by simply becoming alive to the stark reality of not seeing coins (even to make a washer!) in the denominations of 01 cent to 25 cents in circulation! Rather than looking for economic jargon to explain the reason for the magical disappearance of these small coins, suffice would it be to state that at present, rarely would a seller part with or price mark any goods or services at values carrying fractions of a rupee. It is heartening to note that bus conductors and beggars (though receivers!) have already given the lead towards finding a solution to the coins shortage by making us forget the existence of small coins! Thus, carrying on the good work is now up to the producers and retailers in the market place of course in a formal and an acceptable manner!

All what they have to do immediately is to start pricing or selling their goods and services marked to the nearest rupee. The bus and train fares too should be aligned with this concept as public transport is by far the biggest handler of coins next perhaps to places of worship. Gods and deities of course cannot help in this matter as they are at the receiving end! It is up to us to be more generous towards them by making our future vows strictly in paper currency!

The next step is to price mark goods and services to the nearest five rupee. This can be done with several price marked products with the producers changing the size or the weight of their products as the case may be to match the price tags that would carry prices in multiples of Rs. 5/- for eg., if a 400 gm. packet of noodles is sold at Rs. 42, the producer may either change the weight to 500 gms. and sell at Rs. 50 or reduce the weight to 375 gms. and sell at Rs. 40. No compromise should be made with the quality at any cost!

We would then be able to look with joy and consolation at (a) An accounting system sans a cents column in their books, saving enormous unproductive time and energy spent by cashiers and data entry operators dealing in fractions of a rupee, (b) A Central Bank not hard pressed to spend large sums of valuable foreign exchange to mint coins out of expensive base metals for the benefit of metal washer makers who will have to then look for other sources elsewhere! (c) Banks and religious places saving costs and energy in transport and labour involved in handling heavy metal bags! and (d) A relaxed and a peaceful public having no brawls with bus conductors or traders insisting on their balance change!

The flip side of this exercise is that we will be creating a beggar community thriving only on paper currency! So what?

By Bernard Fernando, Moratuwa