Argentina Is Short of Cash - Literally
Arizona Coin Collector
http://online.wsj.com/article/SB123111629554952657.html
The Wall Street Journal
JANUARY 5, 2009
Argentina Is Short of Cash - Literally
Spare some change?
By GEORGE SELGIN
Suppose you want to ride the bus or feed a parking
meter without exact change. Or suppose you just want
to drop a few cents in a street musician's hat.
Nothing easier, right? Not if you live in Argentina.
Try doing any of these things there, and you could
be in for a major hassle.
Why? Because Argentina is in the grips of a
small-change shortage. Want change for a five-peso
(about $1.70) note? Don't try getting it at a store,
unless you plan to buy something -- and be ready in
that case to have the merchant refuse your business
rather than part with precious centavos, or to have
him hand you bon-bons instead of coins. Banks aren't
much help either. The law says they're supposed to
give you up to 20 pesos worth of change; but most
openly flout that rule, supplying just a few pesos
worth, or even hanging out "No Change" signs, like
the ones at retailers' kiosks.
Why the shortage? Argentina's central bank blames
it on "speculators," meaning everyone from ordinary
citizens, who stockpile coins, to Maco, the private
cash-transport company (think of Brinks) that
repackages change gathered from bus companies to
resell at an 8% premium. But those explanations ring
false. "Black marketeering" would not exist if coins
were easy to get in the first place. After all,
Argentines could just as easily hoard razor blades
or matchbooks. Yet there's no shortage of those.
What's so special about coins?
The answer is that coins are supplied by the
government alone. "Put the federal government in
charge of the Sahara desert," Milton Friedman said,
"and in five years there'd be a sand shortage." If
Argentina wants to end the coin shortage, it ought
to give up its monopoly.
Crazy? Not if history is the guide. Over two
centuries ago, Great Britain faced a coin shortage
more severe than Argentina's -- so severe that it
threatened to stop British industrialization in its
tracks. People struggled to get coins for everyday
use. The average worker was lucky to make 10
shillings a week, while the smallest banknotes were
for 10 times as much. So the coin shortage even
prevented factories from paying wages.
Like Argentina's government today, the British
government wasn't able to end the shortage. Yet
the shortage did end -- thanks to private-sector
action. Fed up with the government's inaction,
British firms started minting their own coins.
Within a decade a score of private mints struck
more coins than the Royal Mint had issued in half
a century -- and better ones: heavier, more
beautiful, and a lot harder to fake. Yet they were
also less expensive, since private coiners sold
their products at cost plus a modest markup, like
other competitive firms, instead of charging the
coins' face value, as governments like to do.
Finally, when those who had accepted the private
coins for payment went back to the issuer to
redeem them, issuers offered to exchange their
coins for central bank notes at no cost.
Armed with this history, it takes no great flight
of fancy to imagine Argentine firms today, including
supermarket and retail chains like Carrefour and
Wal-Mart, reputable banks like HSBC Bank Argentina,
and transport companies like Metrovias, issuing
their own centavos and one peso coins. By doing
so they'd no longer be at the mercy of the
government, or of private coin distributors with
their hefty commissions. Ordinary citizens would
benefit too.
So why hasn't private coinage already taken hold?
Most likely because private firms don't expect the
government to put up with it. In Great Britain,
despite all the good they had done, private coins
were banned in 1817, and issuers were confronted
by a mass rush to redeem their coins. This
happened, by the way, when official British coins
were still in very short supply.
If Argentina wants to end the shortage, it ought,
not only to tolerate private coinage, but to
sanction it. It can do so, while eliminating any
risk that such coinage would be abused, through
very simple legislation. It should allow any
private firm to issue distinctly marked coins,
perhaps subject to some minimal capital
requirements, while making it clear that no one
need ever accept any privately issued coins, even
as change for purchases.
Such a law may be all that's needed to solve the
coin shortage, while also preventing anyone from
forcing people to accept money they didn't trust.
Anyone, that is, except the Central Bank of
Argentina.
Mr. Selgin teaches economics at West Virginia
University and is the author of
"Good Money: Birmingham Button makers, the Royal
Mint, and the Beginnings of Modern Coinage"
(University of Michigan Press, 2008).
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RWF
news:rIKdneLXpbPWFfzU...@earthlink.com...
> Such a law may be all that's needed to solve the
> coin shortage, while also preventing anyone from
> forcing people to accept money they didn't trust.
> Anyone, that is, except the Central Bank of
> Argentina.
Of course, instead of a mish-mash of private coinage, the Argentine
gubmint could farm out some of the work to private contractors who would
use official mint dies.