Coin issues and inflation

[Pabitra]

The coins are money whereas notes are promissory notes of the central bank.
The moment coins are minted, seigniorage creates national wealth.
After, they are issued, it does not matter if the inflation goes up.
No nation plans for high inflation. It is a fact which happens despite all government planning.
If the value of metal or alloy goes above the face value then the coins vanish ( as they are melted) but it does not matter if they last in circulation for 5 years ( or 50 years ) since the government should continue to mint coins with appropriate metal, size and denominations.

[Figleaf]

The moment coins are minted, seigniorage creates national wealth.

Not really. Seigniorage starts to build when the coins are issued to the public. If there is no demand for them, they are a pure loss of value added by labour and capital and the metal can only be recuperated by melting, which brings on more cost. It there is demand, the amount outstanding with the public amounts to an interest-free loan from the public to the government minus inflation. With interest for hard currencies as low is it is now, it will take decades to recuperate  the labour and capital cost. Worse, in a high inflation environment, such as the Venezuelan bolivar, interest tends to stay below inflation, so that the seigniorage becomes negative.

Peter

[Pabitra]

The coins are usually minted after the forecast of demand is approved.
If there is no demand then they need not be minted.

Here we are discussing the replacement of smallest denomination notes.
The workout notes adversely affect the poorest most since at any point, they become unusable and unacceptable. The cost of getting them replaced free of cost from the banks cost more than their face value, in fare to go to the bank.

High inflation is result of govt spending too much on non productive work, borrowing from central bank and printing too much of money. The excess supply of money without accompanying growth in goods and services causes inflation.

In low growth economy, there is no borrower ( to set up new capacity ) and hence interest rates are low or even negative.

In case of coinage, since it costs more to mint, there is natural limit on how much the govt can afford to mint hence money supply can not be beyond a limit. Thus minting of coins can never be cause of inflation.

In case of Venezuela, there were plane loads of currency notes printed and imported without any relation to what is growth of GDP. Deficit financing is a tool which needs to be used with intelligence.

[Figleaf]

There ae plenty of examples of coins minted for which there is no demand. This may be the consequence of wrong estimates, inflation making the coins useless, the coins being used as prestige items, competition from banknotes or something else. In Venezuela all these reasons are possible, even likely.

In Venezuela, inflation is caused by economic chaos, capital flight and smuggling. Gross economic mismanagement, including a ridiculous budgetary situation, is just what keeps the situation going. In the long term, the situation stands to get worse as demand for oil is drying up and exports will be subject to border charges or bans on products made with high carbon emission methods.

The cost of minting coins is peanuts to any government of a country with say more than 5 million inhabitants and it's not a limitation or the point. If the money is spent on useless goods it is a waste. Dollar coins rusting away in a US warehouse are a waste, even if dollar banknotes are more expensive. Spending on 1 and 2 eurocent coins is a waste if they are thrown away on receipt.

If Venezuela would seriously want to do something for the poor, they'd have to reform land ownership and the tax system (see Taiwan after the second world war). If they'd do that, the rich would revolt. Coins are counterproductive at the margin in Venezuela.

Peter

[Henk]

The coins are money whereas notes are promissory notes of the central bank.

Not correct, notes are also money. This was already subject in a court case in 17th century England. At that time a will was contested in which was stated that al money was left to person x. The high court ruled that the bank of England notes present in the estate were also money as were the coins and that person x became the legal owner.

minting of coins can never be cause of inflation.

This is not correct there are many cases in history where the coins were debased which caused inflation. Examples: Third century Roman Empire and the 6120's in Germany (kipper und wipper infaltion).

[Henk]

The cost of minting coins is peanuts to any government

I entirely agree with this although this was not the case in the past when taxes were much lower. Another cause is the diminished economic significance of coins. This can best be illustrated by the number of hours work needed to earn the highest value coin in circulation. Now the highest value coin (in the Netherlands) is €2. To obain one about 10 minutes work is needed (0,15 hour). A hundred years ago the highest value coin was a 10 Gulden piece (about € 4,50) for which 2 days work (18 hours) work was needed, 120 times as much. If we go further back in time the time needed would have been even longer.

on 1 and 2 eurocent coins is a waste if they are thrown away on receipt.

In relation to this I can tell the following anecdote: My son last week deposited a handfull of 5 Eurocent coins in a money deposit machine at his bank for which his account was credited with the amount of € 2,55. But two days later he was charged for the cost of depositing coinage: € 6,50. Throwing the coins away would have been cheaper!

[Pabitra]

There ae plenty of examples of coins minted for which there is no demand. This may be the consequence of wrong estimates, inflation making the coins useless, the coins being used as prestige items, competition from banknotes or something else.

Wrong forecast is part of life.
It happens.

In Venezuela, inflation is caused by economic chaos, capital flight and smuggling. Gross economic mismanagement

Such periods of mismanagement do not last for long. There have been cases in Zimbabwe, Turkey. Brazil etc in not so long past.

[/quote]

The cost of minting coins is peanuts to any government of a country with say more than 5 million inhabitants and it's not a limitation or the point.

It is a matter of policy on that issue and culture of the people of that nation. Recently Nepal ( a much poorer nation, from per capita income point of view) placed orders at much higher than face value, for coins whose face value is much lower. The case was discussed in appropriate thread in this forum too.

[Pabitra]

Dollar coins rusting away in a US warehouse are a waste, even if dollar banknotes are more expensive. Spending on 1 and 2 eurocent coins is a waste if they are thrown away on receipt.

The excess Dollar coins were due to legal requirement of minting fixed number of Presidential Dollars. The said requirement has since been amended. The Dollar coins are still being regularly minted in fairly large numbers.

US government has its own policy of minting coins and printing notes. The 1 cent coins are still minted in very large numbers, more than half a billion of them in May 2021 alone. Incidentally, 1 Cent has face value lower than 1 Eurocent, as on date

See

https://www.coinnews.net/2021/06/25/u-s-mint-produces-over-1-47-billion-coins-for-circulation-in-may/


1 and 2 Eurocent coins for circulation have been done away with by only 5 countries of EU, less than 25 percent of the whole group.

The defined percentage of 2 Euro commemorative coins were supposed to come in to circulation. There are many nations of EU which have started avoiding following that law.

Whereas EU nations have been closing down or selling their mints, USA has been minting ever larger numbers

See

https://www.youtube.com/watch?v=YG1juhkY_FE

[Pabitra]

This is not correct there are many cases in history where the coins were debased which caused inflation. Examples: Third century Roman Empire and the 6120's in Germany (kipper und wipper infaltion).

Debasing is an attempt to cope up with inflation and not a cause of inflation.
In last two decades, many countries have changed from Copper Nickel coins to Nickel plated steel, to reduce the cost of coinage. Some have reverted back to other alloys ( like Sri Lanka, Seychelles etc) whereas some have gone back to older alloys ( like Hungary)

[redlock]

The defined percentage of 2 Euro commemorative coins were supposed to come in to circulation. There are many nations of EU which have started avoiding following that law.

Off topic:
This is the reason why I stopped collecting the €2 cc years ago.
Exception to the rule: I continue to collect the German ones because they can be found in change.