Bangladesh Bank has put an advertisement as scroll news in television networks encouraging people to use coins. Earlier, in response to complaints from customers of commercial banks regarding the reluctance of bankers to accept coins, the central bank issued orders to a few branches of commercial banks to accept coins from clients. Does this indicate that our coins are becoming bad money?
Bad money was a concept in the metal age. People then preferred new coins for their accurate metallic content and avoided old coins as bad ones. As people want not to spend new coins as good ones, economist Sir Thomas Gresham said, 'bad money drives out the good'. However, coins are not evaluated in terms of weight in the present times as they have equal legal tender of paper notes. There must not be any ground behind the unpopularity of valid coins in our country.
Why are the banks and individuals unwilling to accept coins in recent days? One possible reason might be a government declaration on January 18, 2015 about gradual withdrawal of coins and one- and two-taka notes. The finance minister argued as 'these small denominations are useless, market will soon drive them out'. It is true that the paisa (one hundred paisa make one taka) is rarely seen in the market for its insignificant purchasing power.
Our currency unit is taka, with 1, 2, 5, 10, 20, 50, 100, 500 and 1000 taka bills. Taka was traded at 78.84 per US dollar and at 0.70 per Japanese yen as of March 07, 2016. One taka was about four times worth of one yen as per their purchasing power parities (PPP). The PPP equated one US dollar at 27.05 taka and 105.27 yen. If a high-income country keeps single yen (PPP $0.009) in circulation, will it be feasible for a lower middle-income country to ignore one-taka note or coin (PPP $0.037)? In this regard, one- and two-taka denominations cannot be ignored for their little buying powers. Can we ignore so small amount in calculating sales tax? Why will we forgo one-taka note or coin when many developed countries have kept equivalent coins in circulation?
Let's have a look at our market on whether the demand for or supply of coins is weak? It is reported that the supply of coins is insufficient for which shopkeepers often offer candies as change-money. The candy-coin has been spread because of an extra profit of sellers from candies. How are we to believe of any shortage in coin supply as Bangladesh Bank in 2013 reprimanded banks for not taking coins? The central bank also issued a circular in June 2014 saying that the scheduled banks should take coins worth of 0.1 per cent of their total withdrawn amount. However, not any of the banks could provide coins in exchange for notes, as reported in a survey in February 2016. Was it due to the soft line of our central bank in coin distribution or for shortage of coin supply?
Our customers might have weak demand for coins for their unfamiliarity with coin keeping system. The supply of two-taka and five-taka coins are insufficient compared to notes of the same denominations. The number of our five-taka notes is 350 million and of coins is 70 million and same is the scenario for two-taka notes and coins. We can avoid managing coins if we just ignore coins of one-taka value. However, Japan has coins for 1, 5, 10, 50, 100 and 500 yen in its currency scale of 10,000 yen. Thailand has coins for one, two, five and ten bath in a scale of 1000 bath. It is remarkable that they have no notes for the same denominations of coins. Do the people of these countries have any options to avoid coins?
Unavailability of coins and sufficient availability of two- and five-taka notes have apparently created problems with the circulation of coins in our market. However, India as a country of our similar status (one rupee is traded for 1.20 taka) has kept coins well in circulation. It is also remarkable that India has made coins available and people have adopted endogenous system of carrying coins. We are yet to get ready to accept five taka as the minimum denomination. Our government, on the eve of the changing status of five-taka bank note to treasury note, can easily withdraw notes of both two- and five-taka denominations. A wide circulation of coins instead will benefit our common people of all ages, classes and occupations who are aggrieved with candy-coins. The government should be strict with the scheduled banks so that they disburse coins and ensure adequate supply of the same.
Dr. M Aminul Islam Akanda is Associate Professor, Department of Economics, Comilla University.
akanda_ai@hotmail.com
When coins become bad money
M Aminul Islam Akanda | Published: March 10, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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