Europe travels - monetary economics
I've spent the last month traveling across Europe. That, and some other stuff has kept this blog fairly quite. Anyway. Here's some observations on how this Money thing works over there.
1. Optimum coin to note ratio.
We started off in Britain. The thing about British money is that there's a lotta coins. In fact, all small and medium sized purchases involve change and change means coins. So you wind up with a buttload of coins in your pocket which, after awhile becomes sort of unnerving. They jingle more than you'd like. They're heavy. They tend to fall out of your pockets when you pull something else out, like a lighter.
So of course you try to get rid of them, paying in multiple coins when you could pay with a 5 pound note or something. But this does not work. Because the prices tend to be quirky as well (something along the lines of the super annoying x.99 cents pricing in US). All that does for you is get you smaller denomination coins - five and two pences - which you receive as change, instead of getting rid of the annoying little discs all together. Soon enough you wind up with a pocketful of jingly small denomination coins that neither you, nor the merchant you're transacting with wants. Your only option is to annoy the merchant by purchasing a few-pound priced good with 2 and 5 pence coins. Understandably quite a few of them refuse.
Then we went to Poland and the Czech R. There local currency still triumphs. But there is a particular social norm left over from the bad old days - everyone insists on exact change. It used to be worse, I remember going back in 96, purchasing stuff worth something like 17.85, handing over a 20 zloty note and being told "This ain't America brother, exact change please!". Now most places just ask you for it but enough of them will reluctantly make change if it is not too bothersome. This whole insistance on exact change however has the perverse general equilibrium effect that hardly anyone ever has exact change. You end up carrying very few coins and small denominations (since you've used it up satisfying the exact change requirement) and all kinds of large bills. Everybody hordes the little denomination coins - in the complete opposite of UK - and those go out of circulation. So it's not uncommon for merchants to tell you "I can't make change for that, go find somewhere else and break down your money". And this isn't some kind of one off transaction we're talking about but just your regular grocery, newspaper, beer buying. And there's obvious transaction costs to that, the very ones that the institution of money is meant to alleviate.
The Euro seems to have achieve that nice middle ground between excessive coins and lack of them. There's still some inefficiencies related to weird pricing but like in US, most of these could be eliminated simply by phasing the very small coin denominations out of circulation.
Yes, get rid of the US penny PLEASE and get rid of the analogous denominations for the Euro.As for UK and Poland, well, it's gonna take some time.
Persistence and all that.
1. Optimum coin to note ratio.
We started off in Britain. The thing about British money is that there's a lotta coins. In fact, all small and medium sized purchases involve change and change means coins. So you wind up with a buttload of coins in your pocket which, after awhile becomes sort of unnerving. They jingle more than you'd like. They're heavy. They tend to fall out of your pockets when you pull something else out, like a lighter.
So of course you try to get rid of them, paying in multiple coins when you could pay with a 5 pound note or something. But this does not work. Because the prices tend to be quirky as well (something along the lines of the super annoying x.99 cents pricing in US). All that does for you is get you smaller denomination coins - five and two pences - which you receive as change, instead of getting rid of the annoying little discs all together. Soon enough you wind up with a pocketful of jingly small denomination coins that neither you, nor the merchant you're transacting with wants. Your only option is to annoy the merchant by purchasing a few-pound priced good with 2 and 5 pence coins. Understandably quite a few of them refuse.
Then we went to Poland and the Czech R. There local currency still triumphs. But there is a particular social norm left over from the bad old days - everyone insists on exact change. It used to be worse, I remember going back in 96, purchasing stuff worth something like 17.85, handing over a 20 zloty note and being told "This ain't America brother, exact change please!". Now most places just ask you for it but enough of them will reluctantly make change if it is not too bothersome. This whole insistance on exact change however has the perverse general equilibrium effect that hardly anyone ever has exact change. You end up carrying very few coins and small denominations (since you've used it up satisfying the exact change requirement) and all kinds of large bills. Everybody hordes the little denomination coins - in the complete opposite of UK - and those go out of circulation. So it's not uncommon for merchants to tell you "I can't make change for that, go find somewhere else and break down your money". And this isn't some kind of one off transaction we're talking about but just your regular grocery, newspaper, beer buying. And there's obvious transaction costs to that, the very ones that the institution of money is meant to alleviate.
The Euro seems to have achieve that nice middle ground between excessive coins and lack of them. There's still some inefficiencies related to weird pricing but like in US, most of these could be eliminated simply by phasing the very small coin denominations out of circulation.
Yes, get rid of the US penny PLEASE and get rid of the analogous denominations for the Euro.As for UK and Poland, well, it's gonna take some time.
Persistence and all that.
posted by YouNotSneaky! at 11:52 PM
16 Comments:
We never had problems like that in Romania... at worst, the cashier would try to give up a bubble gum instead of small change.
But anyway, why didn't you just use a VISA or Mastercard debit/credit card?
When I got here (the US) I just used my card from Romania without any problems...
We did use debit/credit card often but a non trivial number of places did not accept those. I also feel stupid using those cards for making small purchases and the like.
I remember the bubble gum thing - basically the cashier would make you buy something small to round out your total so as to make change.
The ultimate place to avoid this problem is Japan, where I lived for three years. Sure, they have nothing lower than the equivalent of a U.S. $10 note, but they also have a national sales tax that is included in all prices. So almost everything is a nice round number like "100 yen" or "2000 yen" which makes it real easy to get rid of coins. I never had more than 8-10 coins in my pocket at any given time...
The UK pound and the Euro have the same coin/note distribution(coins: 0.01, 0.02, 0.05, 0.1, 0.2, 0.5, 1.0, 2.0; notes: 5.0 and above). But it sounds like it works a lot better for the Euro than the GBP. Any idea why? Because of how things are priced in the UK, or something else?
One of the best innovations in the US was the combination of a 25 cent coin and the dollar bill. This yields very nice ratios between the neighboring common coin (the dime at 2.5:1) and bill (4:1), as the 50 cent and dollar coins are relatively rare in the US. The effect is that one has relatively fewer large coins in the pocket compared with Europe with 50 cent, 1 and 2 Euro coins. The worst ratio in the US is between the nickel and the penny (5:1) but my experience has been that by limiting oneself to 4 pennies in your pocket, you end up with much less change than in Europe with 1 and 2 cent coins.
re: Debit/Credit
I dislike using debit/credit cards for small purchases. It is too easy to spend too much that way. I prefer to withdraw a set amount of cash for a week and use that amount.
I did the same when living in Munich as I do now in Seattle. The rest of my experience with coin to bill ratios is not applicable as Germany was still using DM when I lived there.
When I was in the Netherlands two years ago, most merchants I encountered had abandoned use of the 1- and 2-cent coins, and would round up your change to the nearest nickel.
If businesses want to start doing that in America, I'm ready anytime.
In Europe it depends a lot on the country. E.g. in the Netherlands all amounts, while quoted to the 0.01, are rounded to the 0.1. In Italy almost all prices are quoted to the 0.1, while in Finland they did not even bother making the 0.01, 0.02, and 0.05 coins (and I guess you practically also cannot pay with them).
Others do it the UK way and you indeed end up with all those annoying copper coins piling up at home as you don't want to count them at the cashier.
Luckily in most European countries (and UK) paying with debit cards, even for small amounts, is no problem at all these days.
Both in Romania and the US I would keep something like 20-30 USD in my wallet, for emergencies (and do cashback once in a while to keep that stock) and pay with my card for everything, even a 1$ drink. I never had any complaints.
Anyway, does anyone know what was Sargent's point re: this? I know he has a book on this, too lazy to look it up...
I find that I have more annoying coins in the US than the UK. I suspect that the real answer is that you are rubbish at using coins that come in sensible denominations, just as I am rubbish at using coins that come in crazy stupid denominations.
When I was in Paris in the early 90s, I didn't have very many coins. Everything was priced in francs. Then I left Paris for the countryside and smaller cities and discovered that France still had centimes.
Is it true that Europeans still use coins? I thought they paid for everything by cell phone, or is that just the US press exaggerating.
Thanks for the interesting post. I'm spending most of my time in eastern europe so my thoughts on those I remember well:
a) Russia. 10 ruble note (about 40 cents) is most common, most needed, change problem everywhere. Biggest issue is getting 500 or 1000 ruble notes broken into something usable. 5 ruble coin is useful (about a US quarter), 1 and 2 ruble coins in use and correspond to most price rounding.
Most ridiculous and annoying is coins below 1 ruble - absolutely no use whatsoever. People frequently leave them at the cash in places where they insist on using it.
2) Belarus: no coins that I've seen in years. Vast range in note sizes, denominations, colours, absurd designs makes this really damn confusing. Smallest notes are so small in value that you want to just throw them out. Frequent shortage of change.
In Italy, a Euro country, the situation is much as you describe it in Poland and the Czech Republic. Merchants are loath to make change, and frequently run out of coins well before the end of the day (and yet cashiers regularly act as though they're completely shocked! to have run out of change). Also, stores apparently never maintain rolls of coins on the premises: what they have in their cash drawer is what they have for the day, period. If this is not a problem in other Euro countries, that would suggest to me that what matters is not the Euro per se but the cultural context in which the Euro is used.
Also, for what it's worth, Italian ATMs use 50 euro notes as their basic denomination where US ATMs use 20 dollar notes; you can imagine the chaos and distress that that creates at the cash register.
In Egypt the coins are vanishingly small in value and the smallest note that I received was a 25 piastres, equal to US$0.04. It was a very tired note and appeared to have traded hands many, many times. I didn't end up with much coinage since most merchants charge round prices and haggle only on even increments of Egyptian pounds.
I think the rule ought to be: if people freely disregard that denomination, it's time to end it. You've seen those "Need a penny, Take a Penny, Have a Penny, Leave a Penny" holders at almost every convenience store register? Yup, time to get rid of the penny. I recall seeing people throw pfennigs away as they left restaurants back in 1992, but I think they went one better and got rid of the whole Mark thing.
Great info on the Czechs, strange custom. But it illustrates Higgin's principle: Always keep all of your change on you at all times, use it whenever you can, and you won't ever have any (and thus won't have to keep a big stupid jar of pennies in the house).
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