The Spanish Crown And Argentina’s Coin Problems

It has become fashionable over the past year or two to write about Argentina’s “change” crisis. It can be absurdly hard to get change just when you need it. So writers are right to write about the problem. The latest incarnation came Wednesday in Slate. Though Slate’s article uses outdated estimates for GDP, exchange rate, and inflation data, the piece is a really nice, humorous look at the overall problem. 

But it’s really not a new phenomenon. It’s just worse than it used to be.

This was a problem when I first came to Argentina in 1995. I was stunned at how often I ran into stores whose clerks could never seem to handle small change properly. As a teenager I had worked at Blockbuster Video and one of the first things we learned to do was work the cash register properly, making sure, always, that it was stocked with whatever change might be necessary to successfully “work the register” that day. At the end of the night, if the register was more than five cents short, we had to cover the difference out of our paycheck.

In Argentina, the nature of the problem is more complicated. And it has been written about repeatedly, so I won’t rehash it here. But for a bit of historical context, consider this look at the issue, albeit through a different lens, from the Federal Reserve Bank of Richmond Economic Quarterly: 

“On several occasions between 1770 and 1810, the local elites complained to the Crown about the shortage of small change. In 1773 the king, partly as an attempt to deal with the scarcity of small change, banned any export of fractional money from the colonies.

The nature of the small change problem was twofold. First, low denomination coins (that is, coins of two reals or less) were minted in significantly smaller proportions than the silver pesos; and second, the purchasing power of the lowest-denomination coin was very high.

The lack of small-denomination coins resulted in the use of unofficial means of payment in everyday transactions. One of these instruments, the contraseñas, became very popular. Contraseñas were small metal (tin) discs with the initials of the issuer printed on them.”

One reason for Argentina’s early change problems, as Hubert Ennis explains in the Richmond Fed article, was that its coins were minted by the Spanish crown. Argentina, which was a colony at the time, didn’t have its own minting facilities, and the crown’s priorities didn’t always mesh seamlessly with those of its colonies.

“Minting policies, then, were not uniquely directed to improve the smooth functioning of the monetary economy in the colonies. Spain was the main provider of high quality silver coins to the rest of Europe during that time. For this reason, a major motivation for the Crown’s policies was to maintain an international reputation of high quality for Spanish coins. These competing objectives probably increased the chances of misalignments between demand and supply of denominations.”

In Argentina today, there is some sense in which “contraseñas” can be found in the form of those little candies that Kiosks sometimes offer as change instead of five or 10-centavo coins. And as inflation has reduced the relative value of the five-cent coins, these coins are even harder to find now than they were just a few years ago. Pennies, which did exist when I first came here, are now nowhere to be found.

Naturally, the scarcity of coins these days leads many people to simply round up or down to avoid the hassle of having to collect or pay with exact change. But for those occasions when exact change is required, getting coins can be as hard now as it presumably was in colonial times. However, it’s almost 2009 now, and coins aren’t minted in Spain anymore, so there’s no excuse for the problems we face in finding them. 

The consequences of this problem are easy to spot in the above video, which I filmed one day this week on my way to work. The scene is a common one at the Retiro train station. Every morning, day after day, week after week, hundreds of people line up to buy coins. These lines are a testament, among other things, to the utter incompetence of public policy. They’re also a bleak reminder of how nations can make so much progress on the one hand – and yet so little on the other – over the course of 200 years.

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