Most of us use currency notes and coins every day without a second thought of the way we handle them. Currency notes and coins are so close to us, that they have become a part of our day to day life. With sufficient cash in our hand we feel safe and secure. In today’s business world, wherever we go and whatever we do, currency is with us like our shadow. Let us consider about this wonderful instrument that makes our life easy by facilitating exchange, even exchange among unknown parties without any hesitation.
Currency notes and coins that we use today are called legal tender, as they have a legal backing. Unlike in the past, their material value is much lower than the face value they represent. In the case of Sri Lanka, the Central Bank of Sri Lanka (CBSL) is the legal authority for issuing currency this legal authority, nobody refuses accepting legal tender in settlement of payments and/or debts. That is why we accept them without hesitation. Accordingly, it is clear that the coins and notes we use come from the CBSL. Whoever producers them, there is a cost, as currency can't be manufactured free. It is the CBSL that bears this cost. Since, the CBSL is a public institution, it is the general public, who bear the cost of producing currency notes and coins to facilitate day to day transactions. Therefore, we are both the beneficiaries and cost bearers in the process of currency issue and management.
As Sri Lanka has neither a coin mint nor a currency printer, both notes and coins are produced by foreign entities. Therefore, the cost of producing notes and coins involves a significant amount of foreign exchange. Though the Sri Lanka government has a stake in the current currency note printer, the De La Rue Lanka Currency and Security Print (Pvt) Ltd., the foreign exchange involvement is still significant as almost all the inputs notes and coins and is empowered by the Monetary Law Act (MLA) to execute this function. Because of are imported. We know that unlike many other products, currency notes and coins have an intermediary role. Hence, once a note or a coin is manufactured, it will be in the interest of society to use them in such way that will enable them to last long and facilitate the maximum possible number of payments and settlements. How can the users of currency notes and coins contribute to that end?
Life time of currency coins and notes
Like any other instrument that we use to facilitate our daily activities, both notes and coins too have a life time. The life time of a currency is defined on average as the number of months a currency note or a coin is in circulation before being designated as unserviceable or unfit according to the sorting standards of the issuing authority. Basically, that duration depends on the quality of the material used to produce them, the frequency of usage, the way they are handled and conditions under which they are used. At present, around 97% of the currency in circulation consists of notes and the balance is represented by coins. In Sri Lanka, the average life time of a coin is expected to be more than 25 years, if they are handled properly. The estimated life time of a currency note varies from around 20 months in the case of Rs.10 note to around 85 months in the case of Rs. 1000 note. When the average lifespan of currency increases, the requirement to issue new currency reduces and it helps to reduce the national cost of currency issues. Hence, cost efficient currency management requires measures to extend the life time of currency notes and coins. We can make notes and coins last longer by avoiding bad habits and inculcating good habits in handling currency.
Common, but bad habits of using currency and associated costs
Naturally, coins are both hard and heavy, and hence, inconvenient to carry compared to notes. Hence, people tend to prefer carrying notes, while leaving coins behind at various places at home or work places. The low denominations of - coins too contribute to this behavior, since the required number of coins to meet a given value is relatively higher. However, this habit generates multiple costs both individually and nationally.
The individual cost of not handling currency in proper manner can be either financial or non financial. The financial cost mainly arises when the due balance of a payment is not returned by the sellers citing lack of coins as an excuse. It has become a habit of many small retailers and mainly bus conductors not to return exact due balance to customers and commuters. Further, they tend to find fault with the buyer for not having coins with them to meet the exact payment. It is very common to experience bus conductors starting their first journey for the day empty handed, while requesting commuters, sometimes with a sense of warning to pay with only the correct fare. In such situations the chance of not getting the due balance is high, if the commuter does not have the correct amount in hand.
The non financial cost is mostly associated with the inconvenience and embarrassment an individual faces in settling a payment, when the actual payment cannot be made with required denominations.
How can we avoid such losses?
Individuals can avoid such financial and non financial losses, if they inculcate a habit of carrying some amount of coins with them in their wallets when they leave home rather than letting coins to lay idle at home. Leaving coins to stay idle involves an opportunity cost in terms of forgone interest income, had there been arrangements to deposit excess coins with financial institutions frequently rather than keeping them mostly in tills for longer periods.
School children can be trained to develop a habit of depositing coins in their savings accounts more frequently which they collect in their tills. Overtime they can enjoy their financial wealth growing with their age as well as their knowledge and experience. Banks and other financial institutions also could benefit from such banking habits. All these could help individuals to handle their cash, cost effectively and there will be overall elevation of knowledge and financial discipline over time.
A note or a coin can become unfit for circulation, if it is damaged, mutilated, defaced or has been used to the extent that its main features are beyond easy identification. Therefore, it is difficult to distinguish them from a counterfeits and the users become suspicious when using such notes and coins. It should be noted that most of such factors are relevant more to currency notes than to coins. If a currency note is not used properly, its effective lifetime can end prematurely. Cost of replacing such notes is a waste of valuable resources. We can prevent this by avoiding bad habits and inculcating good habits of handling currency notes.
Commonly observed bad habits of handling currency notes are:
The quality of a note can deteriorate fast due to any of the improper ways of handling them by the public.
In addition to the undue financial cost to the nation, there are indirect costs as well. A currency note is one of the items of our daily usage that has the highest frequency of moving from hand to hand and hence, it is naturally exposed to an array of germs and be an effective transmitter of germs among users. The feeling of a person who happens to receive a dirty note is also not pleasant. A foreign visitor when on arrival to the country receives Sri Lanka currency that is dirty at the foreign exchange counters of the airport,(the first place they usually visit on arrival), their first impression of the people of this country will certainly not be pleasant. That initial impression could haunt them not only throughout their stay but also after leaving the country.
Good habits of using coins and notes
What is most important is to inculcate a culture at both individual and national level that currency notes and coins are precious resources that have to be used cost efficiently. Appreciating the fact that using currency properly can bring benefits both individually and nationally is vital in this regard. Following are a few suggestions for everyone to promote better habits of handling coins and notes.
While handling coins and notes properly, we can enjoy both financial and non financial benefits and also be proud of ourselves that we contribute to a national task of cost efficient currency management. The need is to be more professional and conscious about the efficient handling of our resources for the well being of all citizens including future generation. Our improvements in this front will undoubtedly be a win-win situation.