Does the minting of coins increase inflation?

[Starks]

Just curious. A few people were asking me about Ron's monetary policy.

[fortilite]

More money for the same level of services = less valuable money = inflation

[Starks]

Thanks. I knew that printing sheets of bills created inflation but wasn't sure about coins.

[fortilite]

In an extreme, Zimbabwe level of inflation example:

Let's say the government doubled the amount of money in circulation overnight. That would mean there is twice as much money chasing the same level of goods / services. The value of your money is cut in half.



And as far as coins, coins are just mini-bills. It takes 10 dimes to cause the same amount of inflation as 1 dollar. Although since coins are less handy and more expensive to make, there is additional waste involved with those 10 dimes. To make matters worse, if you lower the value of coins too much by over printing money (regardless of denomination), it becomes more valuable to melt the coins down and use thier metal for other purposes. This actually has historical precedent, it happened in South Africa for example. Coins were more valuable as scrap metal.

[bc2208]

Not necessarily. The money supply is the indicator. If there is more money in circulation, then technically it has been inflated. This takes into account ALL monies in all forms of US Dollars. Unfortunately, the Fed stopped printing the statistic - M3 - that shows us this number.

If the minting of coins is increased while all other forms are decreased, we would have deflation. Our problem is that so much money doesn't exist in physical form that there is just no way to know.

[Starks]

What's the "retirement" rate of old coins and bills?

[RPinSEAZ]

Yes. Money is a commodity just like anything else. If there is an abundance of the commodity it becomes less valuable.

[JordanL]

Coins are made with a semi-valuable material. In some cases, like now, a nickel could actually be worth its value in metals. In which case, no, increasing the supply of coins wouldn't increase inflation.

[davver]

The inflation impact of coinage is fairly low. Credit expansion is fueling inflation.

[ashlux]

Keep in mind money is taken out of circulation too.

As long as current amount of money (in paper or coin form) minus newly printed money equals the amount of money taken out of circulation, then printing of money isn't causing inflation. But this assumes the paper stuff is backed by something tangible. Old scrap pieces of jeans doesn't count. :-)

[philistineau]

Not to the same extent as printing money...

but only because:
a) coins have real value due to their metal content; and
b) the face value of coins is close to the metal content.

If they have to spend 6c to make a 5c coin, they have just deflated the money supply.

If they have to spend 6c to make a $1000 coin, they have just inflated the money supply.

That will never happen though... think how big the vending machines would need to be. ;)

[mconder]

Just curious. A few people were asking me about Ron's monetary policy.

If you could find an endless supply of gold and silver that did not require any effort to mine, then yes. Fortunely, the are both scarce.

[EotS]

Just to be sure we have the fundamentals down pat here - zinc and copper based coins are no different than fiat bills, in that their "value" is assigned by legal tender laws.

So yes, theoretically, you could inflate the economy with quarters and nickels as they currently exist. However, it would not be practical. Most money does not exist in coin or paper. Inflation is accomplished in electronic transactions.

In a free market economy, coins are pure rare metal, such as gold or silver. So there is a practical limit to inflation, as mconder points out.