Sat, Dec 06, 2008 - Page 7 News List

Mexico wants to shrink coins to save a few cents


Does it feel like your money is shrinking nowadays? In some countries around the world, it really is getting smaller.

Mexico has proposed making coins smaller and using cheaper metals to lower cost amid the financial crisis and volatile metal costs.

The Mexican senate on Thursday approved President Felipe Calderon’s bill to modify the country’s coinage. The plan awaits approval from the lower house of congress, which will vote in February.

“We’re being hit hard economically, so we’re looking to spend more efficiently,” said Enrique Lobato, director of cash programming for Mexico’s central bank.

The Mexican economy is running a 1.8 percent budget deficit, the country’s first in years, and next year’s 3 trillion peso (US$224 billion) budget will be tight.

Lobato said that under Calderon’s proposal, the bank could save around 200 million pesos per year in production costs.

Total production costs on coins this year reached nearly 1 billion pesos, he said. Costs include the price of metals and minting the coins. The bank produces around 1.5 billion coins each year.

In Mexico, the use of coins has grown by about 6 percent annually, the government says. Around 20 billion coins are in circulation.

Many countries have done the same to cut costs.

Australia and New Zealand recently eliminated their 1 cent and 5 cent coins, and New Zealand in 2006 significantly reduced the size of its 10, 20 and 50 cent coins.

In the US, the US Mint is lobbying Congress to make the penny more cost-effective. The US$0.01 copper-colored disc now costs US$0.012 to produce.

Countries often will change coin production when inflation and metal prices alter coins’ value and cost-effectiveness, said Francois Velde, a senior economist with the Federal Reserve Bank of Chicago.

“This most likely happens in times of high inflation, of sharp currency devaluation or in times of high commodities prices,” he said. “The lowest denominations are typically hit first, because inflation eats away at their real value.”

Mexico’s annual inflation hit a seven-year high of 6.2 percent in the first two weeks of last month.

Base metal prices, including copper and aluminum, had hit record highs this year, but have fallen nearly 60 percent from last year’s levels.

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