I've been in Buenos Aires for about 2 months now, and it's still hard for me to believe how ridiculous this situation is. Two examples from my daily life:
1) I take the bus every day, which only accepts coins. So, everyday I have to figure out how to get more coins. One strategy I tried was to forgo the convenient subway card and actually stand on line to pay for a single fare card every time I happened to take the subway. A huge pain, but in exchange for a 2 peso bill, I would get a subway ticket and a precious $1.10 in coins.
Only the ticket clerk at the subway stop I most often frequent stopped selling me single tickets. I would show my 2 peso bill and ask for 1 ticket, and he would say "No monedas" and wave me through the gate for free. Every day, the same thing would happen. Same clerk. Same 2 peso bill. No coins, and he would wave me through for free. This went on for 2 weeks.
You would think that I'd be pretty happy about this, but actually, it infuriated me. I really want the coins instead! Sure, I get a free ride, but now I've got to go buy a bottle of water and tangle with a kiosk owner to try and get change.
2) Paying cash at the supermarket can be glacial. They keep very few coins in the cash registers, so every time they run out of coins, the checkout clerk has to call for a manager, who has to go to the safe to get more coins, who then exchanges 2 pesos worth of coins for a 2 peso bill. Yes, that's right...they restock the coins in the register the equivalent of 60 US cents at a time!
What's really interesting about these coin shortages is that they are exactly what we should expect as governments have created monopolies over the manufacture of coinage. Central planning always leads to the systematic misallocation of resources, causing these nasty supply surprises which the government then proceeds to blame on other actors.
An unappreciated miracle of our world is how rare shortages are among truly free-market goods.
"The Big Problem of Small Change" offers the first credible and analytically sound explanation of how a problem that dogged monetary authorities for hundreds of years was finally solved. Two leading economists, Thomas Sargent and François Velde, examine the evolution of Western European economies through the lens of one of the classic problems of monetary history--the recurring scarcity and depreciation of small change. Through penetrating and clearly worded analysis, they tell the story of how monetary technologies, doctrines, and practices evolved from 1300 to 1850; of how the "standard formula" was devised to address an age-old dilemma without causing inflation.
One big problem had long plagued commodity money (that is, money literally worth its weight in gold): governments were hard-pressed to provide a steady supply of small change because of its high costs of production. The ensuing shortages hampered trade and, paradoxically, resulted in inflation and depreciation of small change. After centuries of technological progress that limited counterfeiting, in the nineteenth century governments replaced the small change in use until then with fiat money (money not literally equal to the value claimed for it)--ensuring a secure flow of small change. But this was not all. By solving this problem, suggest Sargent and Velde, modern European states laid the intellectual and practical basis for the diverse forms of money that make the world go round today.
Alas, I couldn't follow their math. (Maybe I should try again, taking more time.) But their historical examples were quite extensive.
I lived in Buenos Aires for four months at the beginning of the year and developed the exact same strategies. And the same thing often happened to me at the subway stations. I often resorted to buying some cheap piece of candy at a corner store to get coins.
It's amazing how you find yourself thinking, "okay this is $2.50 so if I pay with a five I'll get a 2 peso bill back and .50 in coins but if I pay with two 2 peso bills I'll get 1.50 back in coins."
P.S. check out 'Juana M.' definitely the best steak I had in the city. (Plus a real salad)
It costs a lot of money to make coins. With inflation appearing to always be just around the corner, the government if afraid of investing tons of money to mint coins that could some become worth significantly less than the metal they're made of.
That is true. May be the govt should print notes for minor denominations too. They are the government they can legally launch a new currency note, can't they ?
The govt seems to be losing a lot more money with the shortage, like people forced to give free rides on subway.
It's for real. I'm Argentinian and watching the onion is pretty much the same as watching a news channel. I opt to laugh, but I should be crying. No country is as little serious as Argentina... to name a few examples:
-VAT it's at 21%
-The government lies about the inflation index (they say it's 8%, the real number is 25%)... a total theft.
-Farmers have to pay a 30% tax on net incomes... and after that, a 35% tax on profit...
-The president is a woman (joking)
This makes no sense to me. Why would people value a coin above face value, no matter how few there are? Isn't there significant arbitrage opportunity there then?
Because you need to take a bus to go to work. Buses have machines that only accept coins. If you don't have coins, you can't go to work. This is mostly an issue with one-peso coins, as the bus costs 90c.
It's extremely stupid, and also self-fulfilling. Small businesses are afraid of running out of coins so they hoard them. It's really not that big of a deal if you don't take the bus (I either walk or drive depending on the distance). A couple of times in the past year I did have to stand in line at the bank to get change for laundry.
How significant would said arbitrage be, though? In terms of percentages of individual purchases, sure, but if there's a way to scale it up it isn't obvious to me.
In Mexico, the same problem exists, although by the sound of things it isn't nearly as acute as in Argentina. In general, established and professionally run businesses have change; small and informal ones do not. (I think this stems from security concerns: large and well-run businesses have private security and insurance; small ones do not.)
After a while you learn the strategy of making certain purchases at certain places and where those places are. (This can sometimes leave you in a minor bind when you're outside your regular stomping grounds.) You learn the optimal amounts of money to withdraw from different banks' ATMs.
So, having small change buys you not just goods and services — all money does that. It also buys you a bit of time and saves you from aggravation. It really sucks to wait 5 minutes to get change back from a small purchase, as the cashier leaves the store to ask all the neighboring stores if they have change.
Finally, the same phenomenon exists in stable and well-developed countries too, albeit writ small: just ask someone who lives in a small apartment without a washing machine whether he tends to hoard quarters.
In Italy, it's pretty common, even at a busy line in a busy supermarket downtown in a big, busy city, for the cashier to stop and ask if you have exact change, or something close. And then wait while you fish around in your wallet and count it out. Not nearly so bad as what's described in the article, but annoying just the same.
Why trust money printed by the same government that just looted your private pension?
They also went through a national default and currency death not too many years ago. I've heard they don't trust the fiat money; coins, while still fiat money and made of cheap metal, are perceived to be worth more than paper. I couldn't tell you why...
At least they still hold the shared illusion that their coins have value as money, otherwise we would be hearing about gold and barter.
Why trust money printed by the same government
that just looted your private pension?
What would you trust if you were in Argentina? You don't want to carry gold around - people aren't accustomed to trading in it and would be wary of it, and even a little bit of gold is a lot of money.
Key characteristic of something you can use as a currency of last resort is that it must be a liquid market - lots of people willing to trade in it.
Things that affect this:
- Whether or not the government can successfully enforces exchange controls (i.e. you accept that thus much gold is equivalent to thus many units of currency).
- Government mechanisms to outlaw rival forms of currency.
- Whether it is easy to determine the worthiness of an item of currency (gold is subject to the archimedes test)
- Whether you can deal in small items (you don't want to have to carry a fortunate around in your pocket, you want to be able to make small purchases).
The idea of redeemable value stores is something I have quirky ideas about from time to time. I first became aware of Gresham's Law (bad money chases good out of a marketplace) at school with marbles, when I accidentally debased the valuing system. I was rubbish at marbles and had lost all of mine but convinced a few people that there would be value in playing for marbles which were 'demented' in interesting ways (this was all I had left). It wasn't a grand plan - just something to allow me to keep playing. People tend to be protective of their marbles, but playing for demended marbles allowed them to have games with lower risk. But after a bit I actually saw a younger kid cripple a worthwhile marble in order that he could enter a game and remember a guilty feeling that I'd done something bad. The marble craze was dead within days. Maybe the craze was on its way out and the only reason the demented thing got traction was because people were already tiring of it. It was an interesting introduction to the idea of a store of value though.
Ideas: barrels of printer ink, ipv4 ip addresses (could you forge a currency from these? Probably not - I think they're site-bound and therefore not all that transferable or fungible), staples, bicycle tires, quality first aid kits. There's an interesting battle going on between free banking and governments at the moment. By bringing the banks further "into the family", eliminating havens like Swizerland and Luxemburg through strategic bailouts and undermining Lietchenstein with espionage, governments are delaying a separation between currencies and governments. Iceland may be a good place from which to launch such a scheme - they have the infrastructure, would be generally considered trustworthy and they are at odds with Britain. New Zealand could work as a base, also.
"What would you trust if you were in Argentina? You don't want to carry gold around - people aren't accustomed to trading in it and would be wary of it, and even a little bit of gold is a lot of money."
Actually a few months back as the economic crisis was hitting full swing, someone posted a really long diary from someone living in Argentina, and he said that (at least during their worst period a few years back) people used gold jewelery as currency, and that since no one trusted the purity, all gold got treated as junk gold, so you were best off having a stock of cheap gold jewelery.
The way to stop hoarding is through exchanges based on actual value. If one can only exchange coins for their face value (from which the real value has deviated), a rational person will hold onto as many of them as they can.
So someone explain Canada to me, where they got rid of $1 and $2 bills, and visitors regularly complain about how they end up with pockets full of those coins.
1) I take the bus every day, which only accepts coins. So, everyday I have to figure out how to get more coins. One strategy I tried was to forgo the convenient subway card and actually stand on line to pay for a single fare card every time I happened to take the subway. A huge pain, but in exchange for a 2 peso bill, I would get a subway ticket and a precious $1.10 in coins.
Only the ticket clerk at the subway stop I most often frequent stopped selling me single tickets. I would show my 2 peso bill and ask for 1 ticket, and he would say "No monedas" and wave me through the gate for free. Every day, the same thing would happen. Same clerk. Same 2 peso bill. No coins, and he would wave me through for free. This went on for 2 weeks.
You would think that I'd be pretty happy about this, but actually, it infuriated me. I really want the coins instead! Sure, I get a free ride, but now I've got to go buy a bottle of water and tangle with a kiosk owner to try and get change.
2) Paying cash at the supermarket can be glacial. They keep very few coins in the cash registers, so every time they run out of coins, the checkout clerk has to call for a manager, who has to go to the safe to get more coins, who then exchanges 2 pesos worth of coins for a 2 peso bill. Yes, that's right...they restock the coins in the register the equivalent of 60 US cents at a time!