Tuesday, July 10, 2007

Gresham's Law

In what would no doubt be at least mildly pleasing to my Money & Banking instructor, when I saw this story, the term 'Gresham's Law' was still clanking around somewhere upstairs.
Police in Calcutta ... seized what they said was a huge coin-melting unit which was operating in a run-down shack. The grocer confessed to melting down tens of thousands of Indian coins into razor blades which were then smuggled into Bangladesh, police said. "Our one rupee coin is in fact worth 35 rupees, because we make five to seven blades out of them," the grocer allegedly told the police.

Obviously, I doubt we'll see any Victorian-style corrective action where the money supply dwindles until equilibrium is restored, since notes remain in circulation. Likely, the coins which can be profitably smuggled out will do so and remain out of circulation.

Daily Reckoning points out how Canada is considering giving up the penny because of our inflation (and commodity prices) have made the metal in the penny more valuable than the face value.

Daily is somewhat hysterical over this. Personally, what's the big deal? Does anyone actually worry about returing from the store with $3.80 instead of $3.82? A potentially bigger concern in lower-income India, I admit. As he also points out, many countries have given up the cent piece (I can personally vouch for New Zealand), and I don't recall hearing of any financial crises over those decisions.

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