By Brian Lang

What is good coinage? And why do so many countries impose a coinage structure on their population that can only be described as 'bad' coinage.

Generally it could be argued that 'good' coinage has the following characteristics; it is secure, easy to identify as money, easy to differentiate, hand and use, in denominations that facilitate cash transaction. It is also vending-machine friendly, cost effective to issue and returns positive seigniorage.

There are plenty of examples of bad coinage, or rather 'not-so-good' coinage that does not have these characteristics.

Confusing for Tourists

One example is in the US, with the five and ten cent coins. It is not easy to differentiate between denominations, the higher value 10 cent coin is smaller than the lower value 5 cent coin; and neither displays their denomination numeral. And what tourist would know that a 'dime' equals 10 cents?

Another example of not-so-good coinage is the 25 cent denomination (and its equivalent in other currencies). Many countries issue these, but in reality they are not an efficient coin in facilitating cash transactions. A combination of 5,10, 20 and 50 coins will require 23% less coins in change at all points between 5 cents and 95 cents compared with a 5,10, 25 combination, and a staggering 3.2 times fewer coins in a 10, 20, 50 combination. The advantages of the need to hold fewer coins are very significant for the retailer, supplier and distributor.

Another example of a coin with 'not so good' characteristics is the Australian 50 cent. It is large and heavy, thus not easy to handle (and potentially a hazard for cash handlers). It is also is multi-sided which does not make it friendly to the vending industry (which much prefers rounder coins). Added to this, it is also manufactured in cupro-nickel alloys which make it relatively expensive for a low value coin, thus impacting on the issuer's costs and seigniorage gain. Other countries that have similar 'bad' coins in terms of shape, weight and composition are the UK and Canada.

Low Coins Necessary?

And are very low value coins really necessary in the 21st century? In developed countries in particular, how many individual items will cost less than 10 cents? A loaf of bread or a newspaper may well at some time in the distant past have cost less than this, but not any longer. Inflation reduces the value of currency over time; for example a 5 cent coin was worth less in 2009 than what half of one cent was worth in the late 1960s. The elimination of low value coins will require a retailer to make a rounding adjustment at the cash register, but this has successfully occurred in a number of countries without any hassle and no discernable effect on inflation.

There are examples as well of good coinage. The euro coins in particular are all rounded, nicely-sized, and easy to differentiate, (although most of the Euro countries still persist with issuing the 1 and 2 cent coins which are unnecessary in facilitating cash transactions, but add significant costs to the community).

A model is New Zealand. In 2006 this country withdrew the lowest value coin, downsized its remaining low value coins and produced the new coins in plated steel rather than pure alloys. The coins, as illustrated, are easy to differentiate, with a clear numeral and distinct edging (the Bank was commended by the New Zealand Foundation for the Blind). The coinage structure of 10, 20, and 50 has been in circulation for three years with no complaints from the retailers or the public.

Coinage is perhaps regarded as more 'traditional' than banknotes and coins of course last a lot longer, but there would appear to be compelling evidence that coin issuers are dragging their feet in moving into the 21st century, compared with the banknote world, where innovation and change has been occurring quite rapidly in recent years.

Brian Lang was formerly Head of Currency at the Reserve Bank of New Zealand