In New Zealand our lowest denomination note is a $5 note.

For perspective, a can of coke costs $1.50 - $2.00, a Big Mac costs around $5.

The idea of a $5 coin is on the cards.

The question is - what effect does turning a note in to a coin have?

I imagine there would more of a piggybank effect (coins being lost, stuck in collection jars).

Are there any studies on what's happened when notes have been replaced by coins?

  • $\begingroup$ I question whether or not that effect will holdover once these denominations become sufficiently large. That is, people probably aren't as careless with a coin worth 5 as they they are with a coin worth $\phi5$ , $\phi \in (0,5)$. $\endgroup$ – 123 Mar 25 '15 at 2:46
  • $\begingroup$ ^Sure, but for example here where we have $1 and $2 coins, people are likely to drop them into donation jars, or they can roll out of their wallet. $\endgroup$ – dwjohnston Mar 25 '15 at 2:55
  • $\begingroup$ I can't comment on how easily lost are coins because I so rarely use them. I doubt many Americans make coins a serious part of their money cash holdings (our coins have little value). However, I think the lower value of the 1 or 2 dollar coin relative to the 5 dollar coin is more influential on behavior than is the fact that a person is spending coins rather than paper money. So, I doubt transitioning your 5 dollar bill to a 5 dollar coin would cause consumers to adopt a significantly more frivolous attitude and become spendthrifts. Then again - I could be very wrong! $\endgroup$ – 123 Mar 25 '15 at 3:02

The usual rationale for replacing notes with coins is that small-denomination notes and coins circulate heavily, and notes need to be replaced much more often than coins. However, as an example, the costs of transitioning to a dollar coin (think vending machines, etc.) in the U.S. would be significant enough to make the change not worthwhile, according to a FRB staff working paper. See "Costs and Benefits of Replacing the \$1 Federal Reserve Note with a $1 U.S. Coin" for details on their approach, which covers the issues pretty well.

  • $\begingroup$ Yeah, this is an interesting point. When New Zealand replaced all its silver coins (gold $1 and $2 coins remained unchanged) 10 years ago, all the vending machines needed to be replaced/refurbished. But as far as I know it happened pretty smoothly, I don't remember seeing uproar about it. $\endgroup$ – dwjohnston Mar 23 '15 at 21:07

I had a quick look and couldn't find any useful resources for you. I know Australia removed 1c and 2c coins from circulation and the USA has considered removing their 1c coins. It was found to be very very expensive.

The other way around I can't imagine the economic costs would be too high. The main reason of changing relates to the preferences of consumers.


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