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« The parable of Woking | Main | Making a silk e-purse »

Throwing good zinc after bad

By Dave Birch posted Jun 4 2010 at 4:17 PM

[Dave Birch] Well, it looks as if the e-money boosters such as yours truly have suffered a setback because of the great financial crisis.

About 42% of consumers are using more cash than they were a year ago, according to the survey, due out today from the consulting firm Market Strategies International. (Thirty-nine percent of the 1,000 respondents polled in January said they were using less cash than a year earlier, and 19% said they do not use cash.)

[From Back to the Greenback? Consumers Turn on Cards - US Banker]

So almost a fifth of Americans say that they do not use cash? I guess we're making some progress. But not everyone is happy with the Yankee dollars.

The US is the laughing stock of the world when it comes to our money. Our bills all look and feel the same, and only last in circulation for a few years. We have coins that can buy literally nothing, and cost far more to make than what they are worth. The time might be right to put currency reform on the table with any financial reform package.

[From Time For Change To Change | NEWS JUNKIE POST]

It costs them nearly two cents to make a penny: if that was your business, you'd get out of it. But the Feds have decided to make cheaper pennies instead.

Stupidly, in my opinion, the US administration has decided to waste even more money by (instead of simply scrapping pennies and committing to scrap nickels in, say, three years) investigating alternative metals for their construction. So President Obama is proposing to save money by making the coins from cheaper material than their namesakes. Mindful of the likely uproar from the zinc industry, laundromat owners and coin collectors, the government is not disclosing its options.

Vending machine owners and laundromat businesses are poised for a fight -- worried that any change in size, weight and metal content would require costly retooling or even replacement of their machines.

[From Obama's plan to downgrade nickel faces protest from laundromat owners. Should U.S. Mint drop the penny? | Top of the Ticket | Los Angeles Times]

Surely there must be other things to use zinc for? And why is it the taxpayer's job to support laundromat owners? It's about time they switched to using stored-value of one form or another... Back in 1999, I wrote up a case study on laundromats for the sadly long-gone Financial Times Virtual Finance Report, and I'll reproduce part of it here, slightly edited for brevity:

Sifting the evidence from deployed schemes isn't a universally negative experience. Consider the high profile Manhattan pilot involving Mondex and VisaCash. There was one area where Mondex and VisaCash were received warmly in this pilot and that was in coin-operated washing and drying machines. These accounted for almost one third of total card usage. This illustrates an interesting trend not only in New York, where the Clean Rite chain has gone over to smart cards, but in the U.S. (the world's most supposedly most smart card-unfriendly market) as a whole. Mac-Gray Corp recently announced that it will convert half of the 105,000 laundry machines that it has in apartment buildings and college dormitories to smart cards. At every level, the installed base is increasing: Laundromax, for example, already has three smart card-based laundry outlets in Florida and plans to open 20 more such outlets this year.

Super Wash, a laundry chain based in the southwestern U.S., has gone the same way. The e-purse has freed the company from fixed prices and quarter increments. Vending machines now load e-purses for use in the laundry machines. With the purses, Super Wash charges $1.89 for a family-size load (drying included) and offers large discounts on washes between midnight and 6 a.m. The discounts have raised the number of loads each machine handles daily to nine (double the industry norm) generating on average 50% more revenue per location. With no coin slides to jam, Super Wash has reduced maintenance costs by 70% and slashed machine downtime (a jammed machine generates no revenue). Super Wash downloads transaction data from the laundry machine readers every few weeks and then mines the data to see, for example, how the placement of machines affects revenues.

I can remember calling up some of the people involved in these chains and being really surprised to learn that the main element of the business case was not (as I had imagined) the cost of machines getting jammed or the cost of coin collection but the increased sales through the differential pricing. Turned out that the business case was very sensitive to utilitisation, so the ability of digital money to support differential pricing was by far the most important factor in moving them away from coins. With a push, they could all do this, so don't listen to the zinc boosters or laundromat lobbyists and start by scrapping the penny. I see that in some countries, entrepreneurs are taking care of the problem of loose change on their own initiative.

the Bangko Sentral ng Pilipinas or Philippines Central Bank is concerned that a staggering number of coins issued since 1997 are no longer being used in commerce. In that time the bank has issued 15.6 billion coins with a face value of 16.9 billion pesos. This translates to 166 coins for each person in the island nation... “The higher the income bracket, the greater the disdain for the small-value coins, it seems. Among middle income earners, 5- and 10-peso coins are commonly taken for granted and consigned to office or household jars where they are deposited on a daily basis. The frequently cited reason for this habit is that the coins are too heavy for the pockets. It is in these hoarding jars where the BSP could find most of the missing coins, I guess.”

[From Numismaster.com]

Actually if you read a little further down you'll see precisely where the coins have gone, and it isn't into jars in middle-class households.

“Smugglers have also found a lucrative trade in simply collecting them and shipping them out in great volumes to China or other destinations, where they are melted to extract metals useful in the fabrication of various steel products.”

[From Numismaster.com]

Mystery solved. This is strangely reminiscent of the situation in England at the end of the seventeenth century, where the coins needed for day-to-day commerce had vanished from circulation and the Royal Mint appointed the cleverest man alive to solve the problem. Sir Isaac Newton became the master of the mint, and he... oh well, that's another story.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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