Banker Blog#6 Why change the currency?

Have you seen the new UK pound coins yet?

New, shiny, a bit more elaborate than the dull old coins, I like them.

It prompted some discussion mostly, to the effect of people complaining changing the coins is a waste of time and money. I would have to disagree, there are three valid reasons why it is necessary to change the notes, coins and more in circulation.

Firstly, the prevention of counterfeiting

I view most of human history as an arms race between the law and criminals. We come up with cheques, criminals learn to forge signatures. We invent currency, criminals counterfeit. We come up with banking online, criminals start hacking. The longer a currency is in circulation, the more fake copies will be made and also the better the copies will be. Counterfeiting is even used in warfare to destabilise an enemy nation’s economy, that is how dangerous it is. We need to play a bit of musical chairs and just when the criminals have perfect counterfeits, we change it.

Secondly, cultural reasons to change currency

A currency says a lot about a nation, who it decides to put on the notes and who it thinks are worthy of praise and attention. As time passes, new and increasingly diverse figures are deemed worthy of the honour of being on currency.

Generally speaking, you want to pick someone who is dead (so they can’t do anything controversial and force you to recall the coins/notes). You also want to stay away from politics because generally every politician may be loved by half the country and despised by the other half. Go for science or art. It can also be a chance to draw attention to lesser known figures. Darwin, Maxwell etc. these are the faces you tend to see.

Thirdly, economic

The composition of coins can change as the economy of a country changes. Back in ye olde days solid gold coins were the norm (these are worth a fortune if you ever dig them out the ground). Then we started mixing them with other metals and the actual objective value of a coin was based purely on the metal it is made of became worth less and less.

If a country finds a cheaper way to make a coin, it will do, since they are mostly symbolic anyway. Look at Canada where they eliminated the penny, it cost more to make than it was worth.

What to take from this blog?

Physical currency changes constantly for security, cultural and economic reasons, it isn’t done on a whim for no reason. There is also a distinct possibility that in a very near future, physical currency will die out completely but that is a blog for another day.

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