How to make Rs 10 coin acceptable in India? (Some insights from minting and printing history)

Another brilliant post from JP Koning on the Rs 10 coin dilemma in India.

One major reason is that Rs 10 note has been running for much longer. So best way to make Rs 10 coin more popular is to stop printing Rs 10 notes:

What are the underlying reasons for Indians’ fears? One interesting fact about the ₹10 coin is that it is relatively new, having been introduced back in 2009. People are always skeptical about new monetary instruments, which generally take a long time to acquire trust.

Another interesting fact is that in addition to minting a ₹10 coin, the RBI also prints a ₹10 banknote. The ₹10 banknote has a long history, having debuted before independence in 1947. Below is a chart showing how many of each instrument is in circulation. The year-over-year net increase in banknotes continues to outpace the increase in coins by a large amount, indicating that  Indian’s have a preference for the paper version of the ₹10.

I think there is an easy explanation for the ₹10 coin’s loss of currency. Because the ₹10 coin and ₹10 note are perfect substitutes, and converting between them incurs no conversion costs, there is no disciplining mechanism to prevent irrational worries about the newer of these two instruments from crippling its usage. Put differently, hating new ₹10 coins doesn’t impose any costs on the hater as long as an equivalent banknote can be used. If there was no such thing as the ₹10 banknote, then anyone who refused to use the ₹10 coin would face much higher costs for being unreasonable. After all, holding two ₹5 coins or five ₹2 coins in the place of a ₹10 coin is inconvenient.

I dug up data on other coin and notes of smaller denominations. One sees how coins actually became popular due to stagnant printing of notes in all the other three denominations of 1,2 and 5.

Rs 1 coin and note have been under circulation since 1970-71 (and even earlier but we have time series since 1970-71). We see how the coin takes over note in early 90s and does not look back ever since. The gap between coin and note  has only widened.

 

 

 

 

 

Rs 2 coin was issued in early 1990s but quickly took over Rs 2 note by end of 90s. The gap has only widened ever since just like Rs 1.

 

 

 

 

 

In Rs 5, we see notes over coins till mid 90s and then coin takes over. The gap has only widened in recent years as the notes have stagnated.

 

 

 

 

 

But for Rs 10 we see a different story. The note has been circulation since 1970-71. The coin comes in 2009-10 and we actually see the gap rising between note and coin. It does not stagnate as seen in other denominations.

 

 

 

 

 

 

He further says there is a coin-note frontier.

The denomination at which a monetary system switches from coins to notes is referred to by Rocheteau and Lotz (pdf) as the coin-note frontier. In Canada, for instance, the frontier lies between the $2 coin and $5 note, while in Switzerland it lies between the 5 franc coin and 10 franc note. Most frontiers (like Canada’s and Switzerland’s) are staggered—the largest coin is smaller than the smallest note. This staggering makes a lot of sense. Why should both the nation’s mint and its printing presses incur the fixed costs of producing the same unit when one will suffice? Consider too the waste incurred in the doubling-up of the tasks of distributing, sorting and handling a coin and note of the same denomination.

Unlike most countries, India has an even coin-note frontier. For some reason, the Indian monetary authorities have decided to have both the mints and the presses replicate the same task of producing the ₹10. Interestingly, India isn’t alone. The U.S.’s largest coin is $1 while the smallest note is $1.

The US’s $1 coin, introduced in 1979 and referred to as the Susan B. Anthony dollar, is commonly considered to be a major monetary failure. I wrote about it here. $1 coins have proven to be unpopular with the American public, huge amounts of them accumulating in vaults at various Federal Reserve banks. Because the US monetary authorities decided to introduce the $1 coin without removing the $1 bill, the public was given a choice between a perceived “good” currency, the existing and comfortable note, and a “bad” currency, an unfamiliar coin. They took the less costly route and stuck with the “good” notes. My guess is that the very same forces that doomed the $1 coin could end up killing off the ₹10 coin.

The failure of the $1 and ₹10 coins is unfortunate. As Rocheteau and Lotz point out, replacing low denomination notes with coins is a good idea because the the cost of keeping bills in circulation is greater than the cost of servicing coins. While coins are more expensive to produce, they last much longer than bills.

Not sure about the India figures in the graph. The smallest note is Rs 1 and largest coin is Rs 10. In other countries it is just the reverse with largest coin being smaller than the smallest note.

Further, one would believe that people in India would particularly prefer coins over these notes. In India, any small tear or mark on the note is enough for people to accept it as legal tender.  So, apart from authorities even people would prefer coins over notes. And here this Rs 10 does not fit the bill.

Fascinating to learn all this…

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