The other day I was at a busy restaurant paying for some food, the weather was nice and many people were out so the store was a bit busy. I paid cash and needed $1.20 in change, the person behind the counter gave me a bit of an awkward look and said they didn't have enough coins to make exact change. Their lack of coins would appear surprising given the large amount of business they do but they happen to be in an area with very high cashless payment uptake. I said a dollar is close enough, they then gave me a $1 AUD coin and a bronze colored coin. This was immediately a bit odd since all bronze colored coins have been out of circulation in Australia for a long time now.
Upon emptying my pocket at home I noticed that the coin was a 10cent New Zealand coin. Upon dropping the coin on the table it made a very different sound from the Australian coins. Different enough that I was compelled to do it again to hear the sound. I knew when I was younger that the coins were different but it had been a long time since I saw a NZ coin in Australia. Upon looking into it some more in 2006 there were a number of changes to the circulating coinage.
In the past NZ had a similar coin composition to Australia with similar denominations circulating. As a child I remember occasionally coming across small denomination New Zealand coinage in circulation in Australia, the coins were the same size and roughly the same composition. Only the 50 cent coins and up were different dimensions. Back in 2004 the Reserve Bank of New Zealand proposed removing the 5c NZ coin from circulation entirely and simultaneously debased and reduced the size of other circulating coins. Then in 2006 the NZ 5 cent piece was demonetized and the 10, 20 and 50 cent pieces were entirely debased by going to steel plated coinage. The dull thudding sound I head from the NZ 10c piece was the sound of the steel inside the thin electroplated copper shell wobbling as it hit the surface. Due to the differences in hardness and size the resonant frequency was noticeably different to the previous coinage. Something I find disturbing about this process was that they removed the legal tender status of the old coins in this process, despite them having the same face value. Making the coins smaller came with a number of disingenuous justifications such as "making them more convenient to carry around". But really the issue would have been the procurement of metals in the coins. Such actions are perhaps the natural endpoint of adopting an entirely fiat currency mindset, all inherent value in the currency will be destroyed eventually in such a system. Unfortunately this lack of monetary value almost always coincides with a lack of value being placed in honest conduct and as such you are highly unlikely to ever hear an honest reason for currency debasement from a group doing the debasement.
With the recent passing of Queen Elizabeth II we see another potential shift in coinage coming about due to a convenient excuse becoming available as cover to make monetary changes. Inflation has been running rampant in 2021 and 2022 with currency debasement continuing to be widespread around the world. So it would not be surprising to see the redesign of the portraits on the obverse sides of the coins to be used as cover to debase coins or to stop minting them in large quantities. Unfortunately as many currencies are now debasing even faster than seen in the previous decades due to monetary policy choices we have the situation quickly emerging where the costs to mint small denomination coins is exceeding the face value of those coins. The more inflation sets in the more extreme this will get. Eventually all existing coin denominations become uneconomical to mint at all when more and more zeros are tacked onto the fiat currency.
Australia is yet to debase its coinage entirely despite multiple multiple debasements already happening in the last 100 years. In 1966 under the guise of "decimalization" Australia and New Zealand started to make moves to replace the old Pound with a Dollar. In this process coins lost their silver content and went to the cheaper mix of copper and nickle1. Because currency debasement has been happening for decades, due to the nature of the financial and banking systems we have had in place, even back then there were problems with the value of the raw metal content of the coins exceeding the face value. The original 50cent piece in Australia contained 80% silver and 20% copper but rising silver prices in terms of fiat dollars meant that this design only lasted one year, with a switch to 75% copper and 25% nickle happening the year after. New Zealand dropped all silver content in their 1967 changeover to decimal currency. As the currencies have continually lost purchasing power in real terms since then we have a situation where substituting even cheaper metals has been needed to keep up with the destruction of the purchasing power of those dollars. We are now at that point in the cycle where copper and nickle are starting to become "too expensive" to be used in small coins in the face of the purchasing power of currencies dropping. What I find surprising is just how early NZ made the shift compared to Australia where so far coinage has remained the same.
This monetary meddling drives a process known as Gresham's law. Provided the choice between two sets of circulating currencies, the more valuable one will get hoarded more often if the face value of the two is the same. But these days people seem to be exceedingly misinformed about currency and money and they might just continue to mindlessly consume by unthinkingly tapping their plastic cards on payment terminals and not notice these things. No purely fiat currency has ever survived a long time and history shows that currencies frequently fail, what might be less obvious is when currencies effectively default but still remain in administrative use. Even if the average person doesn't notice the shift away from the circulating currency possessing some intrinsic value this step is always a part of the process of the destruction and eventual abandonment of a currency. Perhaps the renewed interest in crypto currencies and precious metals is another hint of where we are at in the cycle.
Debasements happened around the world at this time, with various currencies reducing or outright removing silver from coins in the 1960s. ↩
This post is part 15 of the "MonetaryPolicy" series:
- Finally getting around to publishing some monetary policy articles
- Fast things happen slowly then quickly
- Politics of unproductive debt
- Futures markets lower prices, both in good and bad ways
- Why do stable coins matter
- Why is so much financial advice bullshit
- Bank bail ins
- Where is money created
- Bastiat on legal systems and morality
- Transitory inflation means permanent purchasing power reduction
- Problems with Celsius
- Crypto's Lehman moment
- Crypto crash update May 2022
- The myth of the unbalanced government budget
- The 2006 debasement of NZ coinage *
- Demand destruction anecdotes