The E-Sylum:  Volume 10, Number 18, May 6, 2007, Article 32

COIN SHORTAGE IN SRI LANKA

Dick Johnson writes: "A shortage of small denomination coins in the
island nation of Sri Lanka is causing all kinds of repercussions.

"A low-cost purchase, a bus ride for example, cost the lowest coin a
rider has irrespective of denomination because the driver has no change.
School children, for another example, are bribed with colored pencils,
felt pens and exercise books to raid the family piggy banks to bring in
loose coins. Gift coupons are employed to entice adults to do likewise.
They are given the equivalent amount in paper currency plus the items
often amounting to a 20 percent premium.

"In effect, the coins have risen in value due to inflation. Minting
cheaper steel coins plated with copper or nickel has not helped,
according to the Central Bank of Sri Lanka. The events follow the
difficult classic inflation trend to keep coins in circulation as
costs of services and products rise.

"'The Central Bank got wiser in July 2004 and briefly withdrew issuing
the coins before repricing them at the market value of the precious
metals. Yet, the 5,000 gold coins and 25,000 silver tokens had been a
sell out,' according to an internet article on The Raw Story from
Cambridge, Mass.

"Jewelers were melting gold coins for converting the metal into jewelry.
They said it made good business sense to melt the coins for the gold
metal, albeit illegally, although no one would admit to doing so.

"Five and 10 cent copper coins are almost extinct in circulation with
only the cheaper aluminum replacements found occasionally. Copper coins
have been melted to make screws. Nickel coins have been holed to make
washers. Both used in the construction industry.

"Sri Lankan coins are struck at the Royal Mint of Britain, the Royal
Canadian Mint or the Paris Mint.

"An excellent article and a textbook example of what happens to coins
in early stages of inflation and the worldwide rise of coinage metal
costs."

To read the complete article, see: Full Story

For a firsthand account I turned to my old friend and E-Sylum subscriber
Kavan Ratnatunga who writes from Sri Lanka: "It is costing the CBSL lot
more than face value to mint new coins and therefore getting them back
from accumulations with a 20% incentive is cheaper.

"CBSL still mints a 25cent and 50cent coin which I rarely see in
circulation since they are worthless. The highest denomination coin
in circulation is a Rs5/- which was similar to the British pound worth
Rs220/- and in 2005 converted from Brass to Brass plated Steel.
Full Story

"Average Inflation over the last 66 years has been 11%, i.e. a rupee
in 1941 is same as about Rs1000/- in 2007, a factor of 10 each 22 years.
The US$ is now worth Rs110/. The currency system just needs to keep up
with the change, but politics of not wanting to admit to inflation does
not allow it."

  Wayne Homren, Editor

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