Privatization

Private Benjamins

|

Writing in The Wall Street Journal, George Selgin suggests a solution for Argentina's small-change shortage:

Why the shortage? Argentina's central bank blames it on "speculators," meaning everyone from ordinary citizens, who stockpile coins, to Maco, the private cash-transport company (think of Brinks) that repackages change gathered from bus companies to resell at an 8% premium. But those explanations ring false. "Black marketeering" would not exist if coins were easy to get in the first place. After all, Argentines could just as easily hoard razor blades or matchbooks. Yet there's no shortage of those. What's so special about coins?

The answer is that coins are supplied by the government alone. "Put the federal government in charge of the Sahara desert," Milton Friedman said, "and in five years there'd be a sand shortage." If Argentina wants to end the coin shortage, it ought to give up its monopoly.

Crazy? Not if history is the guide. Over two centuries ago, Great Britain faced a coin shortage more severe than Argentina's -- so severe that it threatened to stop British industrialization in its tracks. People struggled to get coins for everyday use. The average worker was lucky to make 10 shillings a week, while the smallest banknotes were for 10 times as much. So the coin shortage even prevented factories from paying wages.

privatecoin

Like Argentina's government today, the British government wasn't able to end the shortage. Yet the shortage did end -- thanks to private-sector action. Fed up with the government's inaction, British firms started minting their own coins. Within a decade a score of private mints struck more coins than the Royal Mint had issued in half a century -- and better ones: heavier, more beautiful, and a lot harder to fake. Yet they were also less expensive, since private coiners sold their products at cost plus a modest markup, like other competitive firms, instead of charging the coins' face value, as governments like to do. Finally, when those who had accepted the private coins for payment went back to the issuer to redeem them, issuers offered to exchange their coins for central bank notes at no cost.

Armed with this history, it takes no great flight of fancy to imagine Argentine firms today, including supermarket and retail chains like Carrefour and Wal-Mart, reputable banks like HSBC Bank Argentina, and transport companies like Metrovias, issuing their own centavos and one peso coins.

Selgin wrote more about the British experience with private coins in this article and this book.

(Note to sticklers: Yes, I know a Benjamin is somewhat larger than small change. For now!)