Russia’s kopeck coin(s) (0.3 and 1.5 cent) may soon be scrap metal

Financial Times ^ | September 22, 2010 | Courtney Weaver

[Atlas Sneezed]

Vladimir Putin jumped to the rescue of Russian carmakers this summer, lashing out at metallurgical companies for a sharp rebound in metals prices and the harm it did to carmakers’ balance sheets. Now it seems price hikes have hit yet another victim: the Russian kopeck.

Russia’s Central Bank is urging the Duma to cut production of Russia’s smallest coin, and its big sister the 5-kopeck coin as the cost of producing the coins continues to balloon against their actual monetary value.

The cost of producing a kopeck is now 45 times higher than the value of the coin itself, which is equal to one hundredth of a rouble or one hundredth of $0.32. A five-kopeck coin costs 69 kopecks to make.

While previous Central Bank efforts to kill the kopeck have been unsuccessful, its argument is likely to hold more weight now because of a sharp rise in copper and nickel prices since 2008.

Over the past year, the average price of copper has gone up 37.8 per cent, while nickel has risen 43.6 per cent and compressed steel, another ingredient, has added 32.6 per cent.

Putting 234m new 1-kopeck and 58m new 5-kopeck coins into circulation last year cost the Central Bank Rb168m, versus the coins’ total value of Rb5.2m.

On top of that, the coins’ usefulness is also increasingly doubtful as years of inflation have diminished their value: there’s certainly nothing you can buy for a single kopeck.

Next year Russia’s central bank is hoping it won’t have to produce any new 1- and 5-kopeck coins at all– and it seems it might get its wish, or at least half of it.

Pavel Medvedev, deputy head of the Duma’s financial committee, said he was “100 per cent certain” the Duma would accept the Central Bank’s proposal regarding the 1-kopek coin within the next one to two weeks, Vedomosti reported.

Vladislav Reznik, another member of the committee, explained the population itself was for the idea, telling the rest of the Duma’s lower house, “Even in the villages, where there are no roads, they use kopecks to make the floors”, Reuters reported.

While the comments of the financial committee would suggest the kopeck’s fate is in the bag, the future of the 5-kopeck remains less certain.

Medvedev, the Duma representative, said eliminating the 5-kopeck coin could hurt inflation and increase electricity and mobile phone prices - because businesses would be tempted to round prices up to the nearest 10.

While economists, such as Natalia Orlova of Alfa Bank, have dismissed such claims, it seems likely the Duma’s opinion will prevail.

After years of rising metal prices, it appears that for Russia’s political elite the kopeck has finally dropped.

[Atlas Sneezed]

It’s time once again to trot out my currency and coinage reform proposal. If the Russkies are dropping a 1.3 cent-value coin, we can certainly drop our penny.

Given that there has been ample inflation on the order of 10 since the last change, and we have an excessive array of confusing coins and low-value currency, it is time for a practical simplification.

First, denominations need to proceed in a proportional way without large value ratios or crowded ratios. The classic 1-5-10-50-100... progression with ratios of 2.0-5.0 is ideal as a minimum, with denominations of 2, 20, etc. being optional for important valuations.

Second, we want to avoid coins of such low value that they are more trouble than they are worth. Economic waste occurs with the extra time wasted dealing with needlessly small coins. A dime is worth less than a minute of labor at minimum wages, and no currency transaction requires anything smaller than this denomination. The penny and the half-cent served well as the smallest denominations when their values were that of today’s dime. (Note to any economic imbeciles: electronic transactions are often conducted in smaller units than our smallest coin, and that cash registers have been “rounding” - without bias up or down - to the nearest small coin for sales tax purposes for generations. Google “sales tax rounding” if you have doubts and read a few articles).

Third, we want to set the coin/currency transition at a practical level that avoids our wallets being overstuffed with small bills, or our pockets with too many coins. Coins should be suitable for purchases like a magazine, a coffee, a lunch, or a brief cab ride.

Fourth, the ratio between the largest and smallest coin should be limited to a practical factor. Consider that the economy functions effectively with coins at 0.05, 0.10, and 0.25, with pennies treated as trash, and larger coins generally not used. That is a factor of 5 between the largest and smallest coin. A factor of 10-50 may be ideal, and a factor of 100 (as in actual current coinage) is excessive.

Fifth, we need bills of adequately high value for large cash purchases (consider the largest Euro note has a value of about 6.5 times that of the largest US note.)

Sixth, coins should be sized approximately proportional to their value for ease of recognition and use.

The proposal:

Coins:
$0.10 (slightly smaller than the current dime)
$0.50 (slightly smaller than the current nickel, larger than the penny)
$1.00 (slightly smaller than the current quarter dollar, larger than the nickel)
$5.00 (slightly smaller than the current half-dollar) Or it could be set at $2 to avoid overlap with a $5 note.

Currency Notes:
$5 (optional)
$10
$20 (optional)
$50
$100
$500

Our current 6 coins are replaced with 4.
Our current 7 notes are replaced with 4-6.

If you want to talk about making coins out of silver or gold, I’m even more enthusiastic:

$1000 gold coin (1 oz)
$500 gold coin (1/2 oz)
$100 gold coin (1/10 oz)
$20 silver coin (1 oz)
$10 silver coin (1/2 oz)
$2 silver coin (1/10 oz)
$1 copper or base metal coin (1/2 oz)
$0.50 copper or base metal coin (1/4 oz)
$0.10 copper or base metal coin (1/10 oz)

[the invisib1e hand]

you can’t do away with twenties! how are ATM’s gonna work?!

[Genoa]

Good plan! I like the idea of going back to real precious metal in the coins. But at the very least: Get rid of the penny and the one dollar bill. They got rid of the half cent coin about 150 years ago and the world kept right on turning. We have one dollar coins that would circulate if there were no paper option.

[JRandomFreeper]

I still have one 3 ruble silver coin (one ounce). It's slightly radioactive. That and the CCCP shoulder patch are the only spoils I got from the cold war.

/johnny

[Agamemnon]

Your proposal strikes me as denominationally inflationary.

A simple revaluation where that which currently buys a dime is reconfigured to be purchased with a penny would suffice.

Israeli's did this years ago with what they termed "New Shequels" as differentiated from their previously inflated "old" shequel.

As with the EU when they went to a single currency, there was time to transition from Deutschmarks, Francs, and Lira to Euros without impacting inherent value of real assets. Prices will adjust to the new denominational reality.

Peg curreny to the value defined by real assets and end the trading which only enriches the manipulators of currency on the inflationary margins at the expense of the saving and investing public.

FReegards!

[ASOC]

I worked in the Komi Republic in the summer of 1995 cleaning up an oil spill. I asked one of the workers if they had any old coins that I could buy - I still had small one at home, one of things I liked to do was to get foreign coins for them.

The lady brought me a double handful she had around the house - and didn’t want any money - as they were “worthless” - the ruble (rubol) had recently gone to 5K to a single US dollar.

I still collect 50 ruble coins and mount them on a small plaque as mementos - engraved with this old Russian saying
“I would rather have 50 friends and 50 rubles”

Which, I think, says a lot about money and friendship and the value of both. Those crazy Russkies, eh?

[ponygirl]

The summer I was in Prague, I remember they used to have these ice cream stands everywhere. “Zmrzlina.” You would flip them a 2 koruna coin, get your ice cream cone that was always some indescribable flavor and keep walking. (At the time, it was the equivalent of like ten cents or something.) We could also get pints of beer for 25 cents. That was a good summer.

[C210N]

denominationally inflationary.

What with the US debt including its unfunded liabilities at twice the total world's currencies combined, I'm stocking up on wheelbarrows.

[SeeSharp]

$1000 gold coin (1 oz)

You might want to check the current price of gold.

[Cowboy Bob]

Whenever I get 1 and 5 kopek coins in my change, I dump them in my son's piggy bank. They are generally worthless - unless when I'm paying the monthly bills for the apartment. I usually give a handful of them to the cashier at the Sberbank! :0)

[Razzz42]

Stock up on small flasks of Wild Turkey, would turn a better profit.

German currency is stilled used in the black markets there, favored over the Euro.

Do to counterfeiting, only newer US $100 bills are accepted by street money exchangers in foreign lands.

Money is money when back by confidence.

[beaware]

Currently there are 30 Rubles to the dollar and 100 Kopeks for a ruble. In other words, it takes 3000 Kopeks to make one dollar! Good luck finding much in Russia that you can buy for 1 Ruble!

[Atlas Sneezed]

$1000 gold coin (1 oz)

You might want to check the current price of gold.

---

I’m not worried about tracking the plummeting dollar, but simply securing a plausible value in dollars to assign to an ounce of gold.