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South Korea: Cost of inflation

Started by Figleaf, April 18, 2007, 01:01:11 PM

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Developing countries like to keep inflation a bit higher than that of developed countries as a development strategy. It keeps the currency under pressure, so exports will look cheaper. The strategy has a price: shrinking coins!


source: Han Kyoreh

When a coin can no longer be taken at face value
Cost of materials to make Korea?s coins surpasses their worth as currency

As the price of the metals used to make South Korean coins has risen rapidly, the cost of the materials inside the coins has surpassed their face value.

As of early this month, nickel is being traded at US$52,150 per ton on the London Metal Exchange, a nearly fourfold increase from $13,372 per ton in late 2005. Copper and zinc are being traded at around $7,390 and $3,440 per ton, respectively.

A 100-won coin is made of 25 percent nickel and 75 percent copper, while a 50-won coin is 12 percent nickel, 70 percent copper and 18 percent zinc. As a result, as of April 12, the cost of materials to make a 100-won coin was 104.60 won, and to make a 50-won coin cost 52.58 won. It would thus be more profitable to sell the metals used in making the coins than to use the coins as currency. This is not considering the expense of gathering and transporting the coins as well as melting them down and purifying the metals, of course. And there is the issue of legality.

Summarily, the Bank of Korea has started to consider replacing metals used for making 100-won and 50-won coins with less costly ones. Because the price of materials used in making the 10-won coin exceeded its face value, the central bank at the end of last year introduced new, smaller, cheaper-to-make 10-won coins using aluminum instead of copper. But the Bank of Korea faces an uphill battle, as worldwide prices of raw materials are seeing a rapid hike.
An unidentified coin is a piece of metal. An identified coin is a piece of history.