Economics/Currency Forms


Dear Prof Dr Raza

There are mainly two currency forms used in all countries viz paper notes and coins.

What are the reasons that the coins have always been have a lower value as compared to paper notes ? i.e. nickles, dimes, penny, quarters etc

Is it because coins manufacturing is more expensive than paper notes as it is made of metal ?. It is because of the metal weight as compared to paper notes ?. Paper notes are considered more secured currency forms as compared to coins ?.

Do you feel Coins also can be manufactured in future with a high
denomination currency value ?.

As a example, can we have $5, $10, $50, $100 etc currency also as coins ?.

Awaiting your reply,

Thanks & Regards,
Prashant S Akerkar

Dear Prashant,

Thank you for your question.

The main reason why coins in any country have always been of low denominations and paper currency of high denominations springs from the most important function of money in today’s high-technology societies that tends to make transactions as easy and hassle-free as possible.

First, coins are heavy and are meant to be used for transactions involving small values.

Second, coins are less wieldy and less secure in wallets than paper currency. Nobody would like to go shopping for a TV set or a car with many hundred-dollar coins –that is awkward and would require a big pouch to carry. Counting coins, especially for large sums of money, is way more difficult than counting paper bills with the thumb and a finger, supposing you are not using machines. Imagine a bank having daily transactions involving a few million dollars that would require sacs full of coins and machines ladling out coins of thousands of dollars to some customers! The teller would bring them in tumblers, place that on the table, count them, and the customer would count them –what a scene!

Third, suppose somebody traveling from Toronto to New York, carrying about $10,000 in his pocket. Were he to carry that amount of money in hundred-dollar coins (assuming such coins are available), he would have difficulty in carrying that with him. So one reason why high-denomination money is preferred in paper bills rather than in coins is the greater ease it affords in carrying. Moreover, a machine can count even a million dollars in 100-dollar paper bills in a few minutes. Were there some machines for counting 10,000 hundred-dollar coins, machine-counting such an amount of money would probably be less efficient.

Fourth, in modern days people hardly use legal tender currency in transactions involving large amounts. Nowadays plastic money has become the norm of transactions. And that goes even with small amounts. For example, last month, when trying to have some snacks in an airways restaurant at New York, I could see only the displays of delicious items but no counter to place order on, and I had to use the computer screen attached to the table. As I didn’t have American plastic money, I took a swipe with my Canadian credit card, and in a couple of minutes the waiter arrived with the ordered items on a china platter!

Last but not the least, production of coins involves cost. This also goes to make the financial machinery of a country hog-tied. The government may at times need to print more money, whether because total economic resources increase or because there arises the need for some monetary measure to address some issue. Moreover, in case there are counterfeits --which it is easier for the crooks to crank out than print fake bills with hologram and other features --coins would cause lots of problems. Further, since a country may assume there would be a tiny fraction of fake money in circulation anyway, low-denomination coins in that respect provides a sort of built-in check.

Coins are used for small-value transactions and as a result not required to be in high denominations.

I hope, Prashant, this gives you an idea why countries do not produce coins of high denominations.  


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Eklimur Raza


It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.


About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

I teach micro- and macroeconomics at George Brown College (continuing education), Toronto, ON, Canada.

Many articles and editorials, on different subjects, in English newspapers. Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Master degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and Honors
Received First Prize in an inter-university Literary Contest.

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