What would happen to a country if its smallest unit of currency was too large? For instance, if the United States removed from circulation all currency smaller than the five dollar bill?
I imagine it would have been much worse back before credit cards and electronic banking allowed for payments in fractional units, but it seems that even now it could lead to difficulties if uncorrected.
Also, has this ever actually happened to a country? I can’t imagine what could make it happen, but the world is a big place…
This has indeed happened–Australia phased out 1 and 2 cent coins some years ago. Prices are not always expressed in 5 cent increments (e.g. groceries, petrol price per litre, items priced by weight), so if you pay by cash the final price is rounded up or down to to the nearest increment.
I would suspect an informal currency with small denomination would spontaneously appear. Possibly foreign coins/bills would be used for this purpose. Or possibly cigarettes, or some similar cheap and convenient product.
Some years back I visited Italy at a time when there weren’t enough low-denomination lira coins in circulation. (Rumor was that inflation had pressed the value of the lira low enough that the metal value was higher than the purchasing power. I have no idea whether that was true, though.)
The solution was pretty much what clairobscur mentions: You’d buy a small item (a bus ticket, say) and typically get some form of merchandise - typically gum or candy - instead of change. Noone seemed to really mind.
Back in the US “old west” days, when coins were values because of their actual metal content, they would cut up coins for change because lower denominations were scarce. The US dollar coins was basically the same as the Spanish 8 Reale coin, so they were used basically interchangeably, and were cut up into eight pieces to be used as change. Hence the terms “pieces of eight” for the Spanish dollar and “two bits” being 25 cents.
I was just thinking about this today. I was talking to an elderly aunt, and she mentioned the prices of things in 1929, when she was a small child. The house they were renting cost them the imperial currency equivalent of three Australian dollars per week (say USD2.50). $5 was a reasonable weekly wage. This got me wondering about such things as newspapers, bus fares etc. From what I gather, an awful lot of such things were simply a penny or a ha’penny. This had the added effect of keeping inflation down, as retailers could only increase prices by doubling them, so were reluctant to do so. For things such as bags of sweets, I think kids just got a generous serving.
Apparently Britain once had a quarter farthing coin - or a sixteenth of a penny.
When I was growing up (40s), the cent was the smallest coin and had more buying power than the dime today. A penny would buy a ball of gum from a vending machine, postage and newspapers were 3c (post cards cost 1c to send) and gum and candy bars were 5c. $50 a week was good pay and my parents bought a 3BR house in a tony suburb for $7500. On that scale, one has to judge that the penny and even the nickel are pretty useless. But consider that when my grandparents were growing up, the smallest coin was still the penny and in those days $10 a week was good pay. I conclude that we would get along perfectly well if we abolished all coins below a quarter.
I recently read the quite wonderful “The Lunar Men” by Jenny Uglow and she mentions at one point that, owing to a shortage of coins below 1 pound, Wedgewood sometimes had to give a pound to be split among four or five workers in his ceramic factory as their combined weekly wages, leaving it to them to figure out how to divide it. Of course, 1 pound was a huge amount of money in those days (mid 18th century), probably the equivalent of $1000 today.
This also happened in France some years ago, when the smallest value coin was 5 centimes (100 centimes = 1 French Franc), IIRC. It’s something of a moot point now that France has adopted the Euro.
One other example of a country deliberately eschewing small denominations: on the Euro introduction two years ago, Finland (from what I read at the time) decided to mint only small numbers of 1 cent and 2 cent coins (which mainly went directly to collectors), and to round all prices that are usually paid in cash to multiples of 5 cent. Any Finn here who can tell if this worked out?
On the other hand supermarkets here in Germany use prices ending on .48, .49, .98 and .99 quite frequently, so I almost always have 1 cent and 2 cent coins in my pocket. Handy sometimes when you don’t have a screwdriver on you.
Fractional farthing coins were minted, but mostly used in British colonies where the prices were low enough to make them useful. The quarter farthing was used in Ceylon:
I’ve mentioned the US 20 cent piece story before - that came about as a result of a scarcity of small coins in the US West - the western mints were not allowed to produce pennies and nickels. A lot of things apparently cost ten cents, and people would get ripped off when they paid for them with a quarter and got a dime or a 12.5 cent Spanish bit back. For political reasons having to do with the influence of the silver mining industry, it was unacceptable to allow SF or Carson City to simply mint non-silver pennies and nickles. So somebody invented the silver 20 cent piece. Possibly the most unpopular US coin ever minted - easily confused with the quarter, which sounds like a familiar problem. One writeup:
France had this problem in the 1950s. Their solution was to re-value the franc, introducing the “new franc” currency and phasing out the old coins and notes. The new money was labelled “NF” to make it distinct from the old currency. IIRC, 1 new franc was equivalent to 100 old francs.
In all the years since I granulated from high school I have seen thermometers granulated in degrees Fahrenheit or Celsius, I have seen a lot of granulated sugar but I have never seen granulated money or granulated bananas.
This happened a lot during the early years of US coinage, when 1/2 cent was the smallest coin. Of course, that bought a lot in those days. Penny candy was still a penny in the 30’s.
So, I guess in the 1800s you couldn’t buy one piece of candy, but had to swipe it.
Some products are a microcosm of this issue because they have a fairly small range of widely-accepted price points - wines and recorded media spring to mind - Wines tend to be priced at 49 or 99 pence after the pound, effectively making 50 pence the smallest unit of currency for wine - when a rise in cost occurs, the various agnecies in the supply chain (and primarily the retailer in this case) must decide whether to absorb the cost increase or to raise the price to the next price point, i.e. by an amount that is actually way out of proportion with the actual rise in cost, potentially reducing customer interest.
No doubt samclem will show up soon enough with details, but I’ve heard that it was actually almost unheard of for gold coins to be cut up in this way.
Another thing that was done back in the olden days, by the way, was that there was a lot of credit local to a store. You might go tto the grocery store every day and put your purchases on your tab, and then only actually pay up every week or two.
