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[bobf <bobford79 AT yahoo.com>]

I thought this was an interesting article .  Argentina is going through a 
scenario that we could possible see here in the near future.  I thought the 
quotation "Put the government in charge of the Sahara Desert, and soon you 
will have a shortage of sand" was appealing................

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OPINION: THE AMERICAS JANUARY 5, 2009 

Argentina Is Short of Cash – Literally Spare some change?
   
By GEORGE SELGIN

Suppose you want to ride the bus or feed a parking meter without exact 
change. Or suppose you just want to drop a few cents in a street musician's 
hat. Nothing easier, right? Not if you live in Argentina. Try doing any of 
these things there, and you could be in for a major hassle.

 

A sign asking customers to pay with exact change due to the lack of coins is 
displayed at a kiosk in Buenos Aires.

Why? Because Argentina is in the grips of a small-change shortage. Want 
change for a five-peso (about $1.70) note? Don't try getting it at a store, 
unless you plan to buy something -- and be ready in that case to have the 
merchant refuse your business rather than part with precious centavos, or to 
have him hand you bon-bons instead of coins. Banks aren't much help either. 
The law says they're supposed to give you up to 20 pesos worth of change; but 
most openly flout that rule, supplying just a few pesos worth, or even 
hanging out "No Change" signs, like the ones at retailers' kiosks.

Why the shortage? Argentina's central bank blames it on "speculators," 
meaning everyone from ordinary citizens, who stockpile coins, to Maco, the 
private cash-transport company (think of Brinks) that repackages change 
gathered from bus companies to resell at an 8% premium. But those 
explanations ring false. "Black marketeering" would not exist if coins were 
easy to get in the first place. After all, Argentines could just as easily 
hoard razor blades or matchbooks. Yet there's no shortage of those. What's so 
special about coins?


The answer is that coins are supplied by the government alone. "Put the 
federal government in charge of the Sahara desert," Milton Friedman said, 
"and in five years there'd be a sand shortage." If Argentina wants to end the 
coin shortage, it ought to give up its monopoly.

Crazy? Not if history is the guide. Over two centuries ago, Great Britain 
faced a coin shortage more severe than Argentina's -- so severe that it 
threatened to stop British industrialization in its tracks. People struggled 
to get coins for everyday use. The average worker was lucky to make 10 
shillings a week, while the smallest banknotes were for 10 times as much. So 
the coin shortage even prevented factories from paying wages.

Like Argentina's government today, the British government wasn't able to end 
the shortage. Yet the shortage did end -- thanks to private-sector action. 
Fed up with the government's inaction, British firms started minting their 
own coins. Within a decade a score of private mints struck more coins than 
the Royal Mint had issued in half a century -- and better ones: heavier, more 
beautiful, and a lot harder to fake. Yet they were also less expensive, since 
private coiners sold their products at cost plus a modest markup, like other 
competitive firms, instead of charging the coins' face value, as governments 
like to do. Finally, when those who had accepted the private coins for 
payment went back to the issuer to redeem them, issuers offered to exchange 
their coins for central bank notes at no cost.


 
– Armed with this history, it takes no great flight of fancy to imagine 
Argentine firms today, including supermarket and retail chains like Carrefour 
and Wal-Mart, reputable banks like HSBC Bank Argentina, and transport 
companies like Metrovias, issuing their own centavos and one peso coins. By 
doing so they'd no longer be at the mercy of the government, or of private 
coin distributors with their hefty commissions. Ordinary citizens would 
benefit too.

So why hasn't private coinage already taken hold? Most likely because private 
firms don't expect the government to put up with it. In Great Britain, 
despite all the good they had done, private coins were banned in 1817, and 
issuers were confronted by a mass rush to redeem their coins. This happened, 
by the way, when official British coins were still in very short supply.

If Argentina wants to end the shortage, it ought, not only to tolerate 
private coinage, but to sanction it. It can do so, while eliminating any risk 
that such coinage would be abused, through very simple legislation. It should 
allow any private firm to issue distinctly marked coins, perhaps subject to 
some minimal capital requirements, while making it clear that no one need 
ever accept any privately issued coins, even as change for purchases.

Such a law may be all that's needed to solve the coin shortage, while also 
preventing anyone from forcing people to accept money they didn't trust. 
Anyone, that is, except the Central Bank of Argentina.

Mr. Selgin teaches economics at West Virginia University and is the author of 
"Good Money: Birmingham Button makers, the Royal Mint, and the Beginnings of 
Modern Coinage" (University of Michigan Press, 2008).