Sweden: Coinage Reform Saga|
August 20, 2013
Sweden’s Sveriges Riksbank or central bank announced June 27 that it will demonetize 12 million of its existing 1,000-krona bank notes on Dec. 31 as part of the planned coin and bank note currency reform.
According to Sveriges Riksbank information released June 27, the 50- and 1,000-krona bank notes lacking the foil security strip now being used on all new notes will be recalled as a preliminary step to the renewal of the entire bank note and coin series commencing in 2015. The currency reform is aimed at making it more difficult to counterfeit bank notes while making it less expensive and easier to handle coins. The 10-krona coin is the only coin that will remain unchanged.
This announcement comes on the heels of the Swedish central bank “Report from the Banknote and Coin Project” dated March 10, 2011 (Reference No. 2008-286-ADM) and a more recent March 18 Associated Press story documenting the rapidly declining use of coins in circulation in Sweden.
According to the AP story, “Bills and coins represent only three percent of Sweden’s economy, compared to an average of nine percent in the Eurozone, and seven percent in the US, according to the Bank for International Settlements, an umbrella organization for the world’s central banks.”
Before you question why the central bank is bothering to reform its currency under that gloomy prospect, remember former Sveriges Riksbank Deputy Governor Lars Nyberg’s 2012 remarks that cash will survive “like the crocodile, even though it may be forced to see its habitat gradually cut back.”
The habit for circulating coins and bank notes will not only continue to be “cut back” in Sweden, but that habitat will change as well. It is the bank note and coin project report that is of particular interest because it gives us a window through which we can observe the considerations that are weighed when a coinage reform takes place.
According to the 2011 report, “There are several basic requirements if coins are to function as an effective means of payment. It should be easy to identify the denominations, the coins must work in coin machines and automats, and the coins must be distinguishable from those used in neighboring countries. In addition there a number of other factors that need to be take into account when designing a coin series.”
The project continues by examining the protection necessary against counterfeiting, durability of the coins, their purchase price (cost of production), environmental impacts and health risks, and the weight of the proposed coins.
While recognizing that the incidence of counterfeit coins in Sweden is low, the study notes “Coins can be easier or more difficult to counterfeit depending on the design and the material used.”
The materials to be used is addressed. “The hardness of metals varies. This means that the durability of the coins varies depending on the alloy used. The evaluated alloys are well tried and tested and the project’s assessment is that their durability is good, although there are differences. In general, coins have a long lifetime. The purchase price depends on the metals included in the alloys used and on the design of the coin. Prices vary depending on the current prices for metals on the world market.
Regarding production costs the report states, “In order to ensure that the value of the metal does not exceed the nominal value of the coin, the purchase price must be significantly below the nominal value. This applies especially when a new coin series is designed as the difference between the purchase price and the nominal value will decrease as a result of inflation.”
Even health issues were examined. According to the report, “The working environment for those who have to handle coins in the course of their work is also improved. One health issue that the project has devoted particular attention to is the risk of nickel allergy.”
An important observation is that “The weight of the coins is a decisive factor in determining the cash management costs to society as a whole. The weight is mainly determined by the size of the coin. In order to achieve the objective of reducing the weight of the coins, the coins in the new series must therefore be smaller than those in use today.”
Copper-nickel, copper, and Nordic gold coinage metal compositions were considered. “The advantages of copper-nickel are that it is durable, difficult to counterfeit, and easy to recycle. It is also aesthetically attractive due to its silver color. However, nickel has environmental and health disadvantages. Products that contain nickel can trigger contact allergies and the handling of nickel in production processes may entail health risks.”
Regarding copper the report says, “It is relatively durable and easy to recycle. However, copper coins are easier to counterfeit than many other coins because the material is common in commercial products. Copper coins also have a tendency to darken over time. Copper prices have increased in recent years, which has increased the prices of copper coins.”
The study favored copper-plated steel low denomination coins. “They are light, environmentally-friendly and inexpensive. The fact that these coins are easier to counterfeit than other types is of limited importance considering their low value. The fact that copper darkens in the course of time is a disadvantage from an aesthetic point of view, but this has previously been accepted for copper coins for low denominations, for example the 50-, 5-, and 1-öre coins.”
The report continues, “Nordic gold is a suitable material for intermediate denominations. It is a durable material that signals a high value due to its yellow color. [Ringed] bimetal coins are suitable for high-denomination coins.”
The report then presents expenses, indicating the new coins will cost less to produce than is their face values. The report concludes, “The real outcome will depend upon public demand for coins and current metal prices.” The cash crocodile is about to get a new, smaller environment. Will it survive?
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