Sri Lanka In Constant Battle To Keep Up Coin Supply…
Sri Lanka’s central bank is battling to keep the country supplied with coins as metal prices go up and coins disappear from circulation into piggy banks and places of worship.
The Central Bank estimates that 20 to 30 tonnes of Sri Lankan coins are accumulated at Temples and Churches in India as visiting Sri Lankan pilgrims made offerings.
“We are trying to get them back,” Central Bank Governor Nivard Cabraal told reporters in Colombo.
“We are also encouraging devotees going abroad to use coins of that country instead of using Sri Lankan coins.”
Travellers are usually not expected to take coins out of a country and banks only exchange foreign currency notes, leaving the temples in a quandary.
Tonnes of Sri Lankan coins are tied up in gunny sacks along with other foreign coins at places of worship in India posing a challenge to get them back as they have to be sorted and cleaned first.
The bank is also sending officials to regularly collect coins from popular places of worship in Sri Lanka Deputy Governor BDWA Silva said.
The practice of having ‘piggy banks’ is also putting coins out of circulation, Cabraal said.
Cabraal said they were trying to discourage the practice of banks in particular giving out large piggy banks and instead encourage children to deposit coins regularly by using smaller tills.
The central bank had also launched a campaign to persuade people to return coins hoarded at home by paying them a collection fee.
Rising global metal prices (inflation generated by reserve currency central banks such as the Federal Reserve) as well as rupee depreciation (domestic inflation generated by the central bank) has made coins more expensive to produce than their current face value.
A decade ago coins were minted with materials such as cupro-nickel.
But the latest coins are being made with cheaper alternatives such as stainless steel, Cabraal said.
He had also cut the costs of minting new coins by ending the practice of only depending on the Royal Mint to produce Sri Lankan coins.
A series of new coins have also been made with copper, brass and nickel plated steel, which also smaller and lighter making them easier to carry.
Larger, heavier coins tend to be emptied into a container at home when their face value is small instead of carried about in the pocket, driving them out of circulation.
In the early 1980s Sri Lanka switched its 5 and 10 cent coins to aluminum from brass-nickel following a global high inflation in the 1970s as US dollar went off the gold standard due to Federal Reserve money printing followed by even rapid domestic currency depreciation.
The process of high value specie going out of circulation due to inflation is known as Gresham’s Law in economic history.
Before the introduction of fully fiat paper money made it very easy to generate high inflation, Monarchs usually debased the money supply by mixing gold coins with copper, or striking many smaller coins with the same face value by taking back larger coins.
People tended to keep the old coins or less damaged coins with them and exchange for goods only the debased coins.
If there is no ‘face value’ and coins are exchanged on the weight and value of the metal, the problem does not arise.