The Mystery of Venezuela’s Missing Coins

From an article in Forbes:


I wrote a couple of days ago about how some part of Venezuela’s coinage is now worth more as scrap metal than it is as money. To the point that you’d probably do better by going and getting change from a bank rather than robbing it. All of which has led to some interesting follow ons.
This is entirely normal in places with high inflation rates. I’ve seen it happen before in Russia for example. As coins become worth nothing, in the sense that they cannot in fact purchase anything, people simply stop using them.
However, there’s another part to this: where are all those coins going? There’s two possible assumptions: the first is just that they’re in change jars all over the country. That is a possibility. The other is that they’re being trucked over the border or something to a place where people can get the metals value rather than the currency value. For, as I showed (without too much accuracy but it’s a good enough number) the one bolivar coins are now worth about $7,000 US dollars a tonne as scrap metal and $300 dollars a tonne as one bolivar coins. That’s the sort of arbitrage opportunity that people do indeed take advantage of: again, something I saw in Russia decades back.
But here’s where it starts to get weird. A lovely little piece of digging by Steven Bodzin tells us that the Venezuelan mint is still producing these one bolivar coins. The evidence isn’t conclusive to be sure, but the mint is recording that the number of one bolivar coins in circulation went up by 8 million or so in one recent month.
Just to do the math here: there’s 125,000 one bolivar coins to a tonne, so 8 million coins is 64 tonnes of coins. But given our rough metals value (and again, is is a rough value) of $7,000 a tonne then that’s half a million dollars worth of metal that has been turned into coins. Those coins having a value of perhaps $20,000. Or, if you prefer, that’s a net loss to the mint of $480,000 from making coins. Or, in the more technical jargon, that’s reverse seigniorage.
We should note by the way that it’s not uncommon for very small coins to cost more to manufacture than they are worth. A US penny costs more than one penny to make. But that’s a rather different calculation. That’s including all of the costs of manufacturing and distribution. The metals value of one US cent is very much less than one US cent. Here, in the Venezuelan example, the metals value of one bolivar is very much higher than one bolivar.
But this then gives us something of a mystery. If those one bolivar coins are being produced then they must be going somewhere. But where? They don’t seem to be going onto the streets as no one is using them. Bodzin speculates that they might never actually go into circulation:
“Hannah then asks, again on Twitter, where they all went. My guess, as I mentioned a couple years ago, is that they get sold for scrap metal, most likely before ever leaving the mint.
Could be. They might all be languishing in bank vaults, in those change jars even. I am not trying to decide here between those theories: rather, just to outline what would be very interesting to know. If no one in Venezuela is using one bolivar coins and the mint is continuing to make them, well, where are they going?
And the larger point is of course that isn’t it a marvel that a government can screw up so badly that they actually lose money on making money? The public policy lesson of which is whatever it is that you want to do to make the poor better off, a noble goal in itself, we should be using Venezuela as an example of what not to do, a guide to things that don’t work, not as some here in Europe (Syriza and Podemos come to mind) think, as examples to be followed.

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