Coins versus cons

West Bengal and Jharkhand are reportedly facing coin shortages. The suspicion is that the fine quality stainless steel used in one-rupee coins is being used for making shaving blades and idols. With the RBI releasing Rs 40 lakh worth of coins in the market, will the merchants of men8217;s toiletries and devotees be trumped? Unlikely. Coin production is often marked by shortages when the intrinsic value, the value of the metal in the coin, becomes greater than the face value of the coin.

Since metal prices keep changing, the mint is often faced with a situation of reducing the intrinsic value of the metal contained in a coin. This is done by replacing the valuable metal with cheaper metals or alloys. Mohammed bin Tughlaq was not the only one who replaced silver coins with copper ones. Gold and silver have given way to zinc, copper and nickel, and now to stainless steel all over the world. One-, two-, five- and ten-paise coins are no longer produced because it was difficult to make metal coins that cheap. No matter how much you produce, if the value of the metal in the coin is greater than the face value, people will find ways to melt them.

In the US it is illegal to melt small coins. But while citizens are subject to the country8217;s laws, foreigners are not. So sackfuls of Indian coins finding their way to Nepal and Bangladesh may continue even if coins are not melted in Kolkata or Ranchi. Even as mints carefully watch the metal composition of a coin and its value, it is not uncommon for coins to start disappearing before a change comes. Another complication: if the intrinsic value of a coin is less than the face value then counterfeiting becomes profitable. The cupro nickel, eight-gram, five-rupee coin is also reported to be facing a shortage. Time to think of a substitute that is cheaper but not that cheap.