Arthshastra Indian Journal of Economics & Research

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The Coining of an Economy : When, Why, How


Affiliations
1 Strategy Analyst, Accenture Strategy, 5th Floor, Piramal Tower, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013, Maharashtra, India
2 Investment Banking Analyst, JP Morgan, JP Morgan Chase and Co., L and T Business Park , Gate No 5, Jogeshwari - Vikhroli Link Rd., Powai, Mumbai - 400 072, Maharashtra, India
3 Head, Department of Public Policy, St. Xavier’s College (Autonomous), 5, Mahapalika Marg, Dhobi Talao, ChhatrapatiShivaji Terminus Area, Fort, Mumbai - 400 001, Maharashtra, India

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Coins have played a crucial role in every economy. So close is their relationship that almost every economy has introduced at least one new denomination of coin to add it to its original set. This raises the question, when does an economy introduce a new denomination of coin ? To answer the question, this paper studied a diverse set of 10 different economies over the period from 1975 – 2019. It inferred that sticky inflation compels an economy to introduce a new denomination; a low denominated but high velocity banknote is coined as financial prudence, and durability makes the coin a better alternative to fund routine transactions at the bottom of the pyramid. Even when coins are absent in the economy, had coins existed, sticky inflation would have forced conversion of lower banknote denomination to a coin.

Keywords

Coins, Inflation, Banknotes, Central Bank, Economy, Keynes, Fischer, Money Demand.
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  • The Coining of an Economy : When, Why, How

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Authors

Anurag Sarda
Strategy Analyst, Accenture Strategy, 5th Floor, Piramal Tower, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013, Maharashtra, India
Roshan Raheja
Investment Banking Analyst, JP Morgan, JP Morgan Chase and Co., L and T Business Park , Gate No 5, Jogeshwari - Vikhroli Link Rd., Powai, Mumbai - 400 072, Maharashtra, India
Agnelo Menezes
Head, Department of Public Policy, St. Xavier’s College (Autonomous), 5, Mahapalika Marg, Dhobi Talao, ChhatrapatiShivaji Terminus Area, Fort, Mumbai - 400 001, Maharashtra, India

Abstract


Coins have played a crucial role in every economy. So close is their relationship that almost every economy has introduced at least one new denomination of coin to add it to its original set. This raises the question, when does an economy introduce a new denomination of coin ? To answer the question, this paper studied a diverse set of 10 different economies over the period from 1975 – 2019. It inferred that sticky inflation compels an economy to introduce a new denomination; a low denominated but high velocity banknote is coined as financial prudence, and durability makes the coin a better alternative to fund routine transactions at the bottom of the pyramid. Even when coins are absent in the economy, had coins existed, sticky inflation would have forced conversion of lower banknote denomination to a coin.

Keywords


Coins, Inflation, Banknotes, Central Bank, Economy, Keynes, Fischer, Money Demand.

References





DOI: https://doi.org/10.17010/aijer%2F2020%2Fv9i4%2F156810