The news that the Mint of Finland is closing down will no doubt be cited by many as another grim reminder that cash is on the way out. Certainly, that was the reason given by the company when it announced that it is winding down and will cease operations next year.
But, as we argued in our editorial of last month, relating to the news earlier this year that the UK’s Royal Mint is exiting production of coins and blanks for export, whilst there is undoubtedly an element of that, it is by no means the whole story.
Cash in circulation continues to grow – at around 4% per year. Admittedly, this hides substantial regional and economic variations. The difference between banknote and coin usage is partly due to higher denomination banknotes being held as a store of value (not something that happens with coins) while the use of cash for transactions (which is where coins come in) is in decline in many (but not all) parts of the world.
But irrespective of the debate about whether cash is dying or not, and if so, how quickly, the problems at the Mint of Finland and The Royal Mint are as much to do with the dysfunctional nature of the circulating coin market as it is with the role of cash.
The major problem, as we pointed out last month, is that there are simply too many mints relative to the demand for coins, exacerbated in countries where the national indent is small.
A few years ago, we did a comparative analysis of banknote printers and mints by dividing the annual number of banknotes produced by the number of printers. Ditto for coins and mints. Per this analysis, the banknote to printer ratio (59 printers) was 2.2 billion notes, whereas for mints (the 54 that produce circulating coins) it was 800 million coins.
It was a very crude calculation, but it nevertheless demonstrated the overcapacity in the mint industry, which has been long due an adjustment.
Why there are so many mints has a lot to do with history, tradition and emotion. And a dose of political reluctance.
In many countries, having their own currency producer is a symbol of national pride, dressed up as a means of ensuring sovereignty and security. This appears to be particularly the case with mints, which have a totemic significance in the national psyche to a greater extent even than banknote printers. And virtually all ‘sovereign’ mints (so defined by the fact that they mint their countries’ coins) are state-owned.
Even in countries with a strong free market disposition, attempts to interfere with the coinage can meet with strong resistance. In the great scheme of things, therefore, many governments undoubtedly take the view that privatising or shutting down mints is not worth the political capital that it would involve. Particularly since many do actually make money (both literally and figuratively). Not on circulating coins, but on their other activities – commemorative and collectors coins, medals, precious metal trading, bullion, luxury jewellery etc. The strength of their name and the fact that they are sovereign mints give them the credibility and trust to do so.
The upshot, for circulating coins, is an over-crowded market, with too many mints pursuing too little business – driving down prices. Add to this rising energy and material costs, more and more countries dispensing with lower denomination (and high volume) coins, a growing trend for programmes that get existing coins back into circulation (good news for issuers and taxpayers, less so for mints) and – yes – a move away from cash, and we have something akin to a perfect storm.
Most mints can ride the storm. But the Mint of Finland, with no other business than circulating coins, could not.
