Physical money like coins have been a staple of monetary systems since metals have been being forged. One of the reasons why coins have been the basis of such great money systems is because coins cannot be printed into existence on a whim. It requires lots of work to produce coins which is exactly what has made them a historically safe mechanism to base money off of. Some would argue that gold was (and still is) the best money the world has ever seen but physical money is slow and incredibly expensive. Now that bitcoin can fulfill all of the monetary qualities of gold, there is no need to use metals as money in the developed world.
Where Do Coins Come From?
Pocket change. We have probably all used it at some point in our lifetime. Whether we use it to pay for parking meters, throw into wishing wells or simply to let them collect in your junk drawer, coins have largely been so devalued that they aren’t worth producing or using for much in the developed world.
Simply to get the materials needed to produce coins requires an incredible amount of labor, mining materials from the ground, transporting those raw materials, refining those materials, transporting those refined materials, minting the coins themselves, transporting the minted coins, fighting devaluation via inflation & counterfeiting, counting coins, and then re counting them to exchange them for notes. The entire system requires immense amounts of human labor, resources, time and trust to make happen and it’s a huge waste of resources.
That entire system is outdated which makes physical money like paper notes and pocket change slow and incredibly expensive to produce and use every day.
Here’s just some of what is required to make physical money.
Mining The Raw Materials
First, large mines are dug in order to pull the raw minerals out of the ground. This process has a number of costs that come with it. Mining requires a lot of time, money, resources, physical risk to the workers who are working the mines, and can have a substantial environmental impact even if it is done as responsibly as it can be.
We obviously use these metals for more than just making coins but since coins are slowing becoming obsolete, it doesn’t make much sense to expend the amount of resources that we do to manufacture them.
Transporting The Raw Materials
Once the raw materials have been mined out of the ground, they need to be transported to refineries where they are melted down and turned into the materials that we use to mint coins and other goods.
This is an expensive process that requires lots of heavy equipment, human expertise, and large amounts of fossil fuels.
Refining The Raw Materials
As soon as the raw materials have been transported to a refinery, now even more resources are consumed by separating those raw materials into their pure form so that they can be used to make coins and other goods.
Most of the coins that we use are not made up of just a single metal. They are actually a combination of multiple metals that once bonded to others are called alloys.
Producing Alloys with The Refined Materials
Most coins in the world are not made from a single metal. Sometimes metals are bonded together to make an alloy while other types of coins are not technically chemically bonded and are just one metal coated in another. Ever since 1982, The United States Penny has been made up of 97.5& Zinc with a 2.5% copper coating.
The process of chemically bonding metals also comes with a set of monetary, resource, environmental costs as well as being a relatively dangerous process. Once the alloys are forged, it’s time to transport them yet again.
Transporting The Alloys
Now that the materials have been refined into alloys, the next step is to turn them into coins so they need to be transported yet again. This time the destination is to where they will be minted into coins that we use to pay parking meters, throw into wishing wells and maybe even use to purchase goods and services.
Minting The Coins
In the United States, coins are minted in only a few places. The Denver mint, The San Francisco mint and the Philadelphia mint. These facilities are massive and mint a lot of coins every year. If you get a chance to visit where your local coins are minted, try to go on a tour so you can see the immense amount of resources that are required to produce your national coinage.
To mint coins, massive machines strike small pieces of metal that are then declared money by national governments and treasury departments. These minting facilities are incredibly costly to produce and require a substantial amount of electricity, resources to secure and maintain.
As if all of that isn’t inefficient enough, some coins cost more to produce than their face value. It actually costs more money to produce both a penny and a nickel than they are worth. According to an article published by The Washington Post back in 2015, The Department of the treasury loses $100+ million each year to produce coins. That’s ridiculous.
Circulating The Minted Coins
Since coins are physical, moving them is slow and expensive. In order for coins to circulate into an economy, they need to be circulated through the banking system via large armored trucks. These armored trucks are expensive and use a lot of fossil fuel just to transport a bunch of coins. That’s an awful lot of work just so that people like you and me can collect a bunch of little tokens in our pockets or change jars.
Spending & Counting Coins
Once coins have been circulated through the banking system, now they need to be spent by consumers and business. When you pay for something with paper notes (like dollar bills in the US), there’s at least a 99% chance that you will receive some change back.
How much time have you spent waiting to get change back from a business or retailer? How much time have you spent counting out exact change or waiting for someone else in front of you to do so? How many times have you received an incorrect amount of change? All of these have a cost whether it’s loss of time or loss of money for whoever received the incorrect amount of change.
This is yet another cost that often goes unnoticed when considering the true cost of physical money.
Counting coins is such a waste of time that companies have made specialized machines that automatically give change for transactions so that the person running the cash register doesn’t have to waste time to count the coins or run the risk of giving the wrong amount of change.
It gets worse though. Not only are there machines specifically for giving coin change, but there are also machines specifically for counting coins so that they can be exchanged for paper money or deposited into a bank account.
As if all of this wasn’t costly enough, coins are still not resistant to being counterfeit or devalued.
Monetary Inflation and Coinage
Due to the devaluation of some fiat currencies, it is not uncommon for the metal that the coins are made up of to be worth more than the face value of the coins themselves. According to Coinflation.com, Pennies minted between 1909 and 1982 are 95% copper which means that they are currently worth about 80% more than their face value.
Melting down coins is illegal in the US so make sure that you don’t try to make some easy money by melting old pennies down into copper bars. You’re likely to get investigated (and arrested) by the federal government if you do. Such a task force is yet another part of the cost of the physical money machine.
Counterfeiting and Devaluing Money
You’ve probably never really given much thought about coins being counterfeit but that has actually been a long-standing problem with coins over the centuries.
If money is easy to duplicate, then it will not take long for bad actors to completely debase a currency by flooding the market with fake value until the market no longer trusts it.
Back during the reign of the Roman Empire, bad actors would shave off the edges of metal coins and collect these shavings so they could forge an entirely new coin. This led to coins being devalued and inflation of the money supply by reducing the lasting value of coins.
Over time, different civilizations have come up with various methods to combat this kind of counterfeiting and devaluation. Here are a few of them.
Reeded Edges & Inscriptions
In the United States, both the 10 cent coin and the 25 cent coin have tiny ridges around the edges so that it is obvious that a coin’s edges have been shaved down. These are called reeded edges.
Some coins like the British 1 Pound coin have words inscribed around the edges to prevent any sort of shaving.
Polygonal Coins
Polygonal coins use a similar method to prevent counterfeiting. Instead of a bunch of small ridges around the edge, coins have many sides that could easily be counted by both merchants and consumers to ensure that they are trustworthy. If a coin has less than the number of sides that it was supposed to have, it is considered a fake and won’t be accepted by merchants and will slowly be driven out of circulation.
Polygonal coins are widely used today in many parts of the world such as the United Kingdom.
Punching Out The Center
A number of coins historically used in Asia have had a small hole punched out of the middle. This is said to make it easy to put them on a string for easy carrying but also to make them more difficult to counterfeit. Having a hole punched out of the center also makes them cheaper to produce since they require less metal.
Bimetalic Coins
You may have seen or used some coins that are made up of more than one metal. Often a coin in the center with a different metal around the perimeter. In order to counterfeit such a coin, a bad actor would have to mine not only one similar metal but two and then find a way to press them together so perfectly that it would fool merchants and consumers.
Coins that use more than one alloy are commonly found in the Eurozone, The UK, and Canada.
Each and every one of these anti-counterfeiting measures takes time, effort, energy, money, resources and comes with an environmental impact and the worst part of all of this is that it still doesn’t prevent counterfeiting so all of this effort still results in an immense waste of resources.
Use Bitcoin
Obviously, in the developed world, there are more electronic alternatives to physical money than just bitcoin. What separates bitcoin from fiat is the substantial differences in the efficiency of producing, distributing, authenticating, and maintaining solvency. Each and every bitcoin transaction is sent from anywhere in the world to anywhere else in the world and authenticated in real-time. If a transaction is fake or fraudulent, then the network will reject the transaction. No physical money or legacy electronic payment system can make this same claim.
Any country or merchant that is interested in using a monetary system that possesses these qualities should use bitcoin.
Additional Resources & Information
The Euro Coins – https://ec.europa.eu/info/about-european-commission/euro/euro-coins-and-notes/euro-coins/types-euro-coins_en
The US Mint – https://en.wikipedia.org/wiki/United_States_Mint
Coin Counterfeiting – https://en.wikipedia.org/wiki/Coin_counterfeiting