FIVE years ago, the Monetary Board of the Bangko Sentral ng Pilipinas created a special committee to address the problems arising from the circulation of Philippine currency—challenges which persist up to the present.
BSP Governor Amando Tetangco Jr., who was then the first chair of the Currency Management Committee (CuMC), stressed the importance of creating such a committee because of three main concerns: the perceived shortage of coins in some regions in the country, the indications that coins are not being circulated effectively, and the need for BSP to produce more coins to make up for those not in circulation. The production cost runs into millions of pesos.
Last week, I discussed the main reason behind the country’s perennial shortage of coins, particularly the lower-denominated ones: the negative attitude and low regard for small currency.
Instead of using coins to purchase goods (and in effect circulating them in the market where they rightfully belong), many Filipinos consider them as “excess baggage” and leave them at home.
The practice of keeping coins in piggy banks for a long time also leads to this artificial, but persistent, shortage of coins.
The BSP sees another reason behind this problem: coin smuggling.
Dr. Paterson Encabo, head of BSP’s Mint Refinery Operations Division (MROD), explained that in the last two years, there have been some attempts to smuggle out coins, particularly 1-piso, because of the increased international demand for copper and nickel.
Encabo explained this was because of the higher metal content of 1-piso coins belonging to an earlier series. The earlier 1-piso coin was then worth P1.50 because of its nickel and copper content.
“However, the metal composition of today’s P1-piso coin should discourage smugglers. It is now made of nickel-plated, low-value steel,” Encabo said.
Just the same the cost to produce the same 1-piso coin, considering metal content plus production cost, is much more. We spend approximately P1.55 for every 1-piso coin. Metal content accounts for 0.75 centavos while production cost amounts to roughly 0.80 centavos.
Thus, coin production for the 1-piso coin would entail negative seigniorage.
Seiniorage is the difference between the coin’s total production cost (cost of the metal + labor) and the coin’s face value. When the production cost of the coin is greater than its nominal value (especially for the lower denominated coins, such as 25-, 10- and 1-sentimo), negative seigniorage is incurred.
Thus the Currency Management Committee, now headed by Deputy Governor Diwa Guinigundo, continues to look for ways and means not only to efficiently produce notes and coins, consistent with the requirements of the economy, but also to ensure that that coins are effectively circulating.
All banks are encouraged not look at coin deposits as “labor-intensive”. Instead, banks are persuaded to even encourage their clients to deposit and save their small currencies with them.
Both the retail sector and the Filipino public, on the other hand, should adopt a positive attitude toward our coins and make sure to use them whenever they can.
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