Money, Money, Money

My students in U.S. history at the Collegium Excellens had a lot of difficulty with money and monetary terms. Now, it gets even tougher. It isn't just paper or gold, it's paper, gold, or plastic. If this is (fair & balanced) mountebanking, so be it.


[x Slate]
Paper or Plastic? Mexico and Australia have ditched paper money for plastic bills. Should we, too?
By Eric Weiner

Considering it's the root of all evil, the sinew of love as well as war, money is surprisingly fragile. At least the paper variety is. The average $5 bill lasts only 16 months. Notes circulating in tropical climates wear even more quickly. I lived in India for several years and had more than one rupee bill literally disintegrate in my hands.

This explains why Mexico and 22 other nations have switched from paper to plastic money for at least some denominations. Plastic bills last longer and are more difficult to counterfeit than paper bills. They are less likely to trip up ATMs, and they carry fewer germs. Plastic bills look and feel like "real" money, though they are a bit slicker to the touch.

The decision to switch from paper to plastic isn't an easy one. Countries take their money seriously. They want their currencies to convey stability and power. Plastic implies cheapness and artifice, which is why all of the countries using plastic money prefer to call it by a more technical name: polymer money.

Mexico, for instance, is now issuing a 20-peso note ($1.79) made entirely out of polymer, or plastic. The plastic peso has gone over well. It looks a lot like the old, paper note it replaced. Here's a photo. There's still a portrait of former President Benito Juarez. There's an added security feature, though: a clear plastic window, about the size of a postage stamp, that is extremely difficult to forge—and that's one of the main reasons Mexico made the switch to plastic. Only plastic bills have this security window.

Plastic currency has come a long way in a relatively short amount of time. Haiti and Costa Rica briefly experimented with a primitive version of plastic money in the early 1980s, but it was Australia that mastered the technology, issuing its first plastic bills in 1988 and converting entirely to plastic soon after. Each year, more and more countries are making the switch to plastic—most recently, Chile.

Plastic money has several advantages over paper. The plastic bills absorb less moisture and are therefore less likely to transmit germs, which is a danger, albeit a rare one, with paper notes. Plastic bills can endure a lot of abuse. You can twist them, bend them, and even put them through a wash/spin cycle without doing serious damage. They last four times longer than paper bills.

Plastic bills are also less likely to clog ATMs and vending machines, since they don't shed ink the way paper money does. Those tiny bits of ink—and dust—confuse the optical reading devices found in ATMs.

The switch from paper to plastic does require some adjustments. Mexican banks, for instance, have had to change the way they handle money. No longer can they staple bills together, a common practice in much of the world. I remember spending hours trying to gingerly remove staples from a brick of Indian rupees. The slightest tear and the bills were rendered worthless.

Plastic money is also springier than paper money. People have to make subtle adjustments in the way they fold their money in their wallets. And while plastic money is more difficult to forge, counterfeiters are remarkably innovative. They've already produced a few respectable copies of Australia's plastic currency.

So, how do the world's treasury officials make that fateful decision: paper or plastic? Money, it turns out, is a big factor when deciding what kind of money to use. It costs six cents, on average, to print a single U.S. bill. (A pittance, but the volume is tremendous—about 8 billion bills are printed each year.) Plastic costs twice as much to make but lasts four times longer. So, the cost advantage goes to plastic.

There is, however, more to money than money. People have to like the feel of the notes in their palms, and here paper gets the edge. It has a more solid, less slippery feel than plastic. And that can make a huge difference. Thailand, for instance, dabbled in plastic but recently reverted to paper after Thais complained that the new money tended to discolor and didn't handle well.

So far, none of the world's major economic powers—the United States, the European Union, and Japan—have made the switch from paper to plastic. The EU already made one tectonic shift, to a common currency, so switching to newfangled polymer bills was probably too much to ask. The United States has "looked into polymer," says Trevor Wilkin, publisher of polymernotes.com and one of a handful of experts on plastic money, but he doubts if we're about to go plastic anytime soon. The paper manufacturers have tradition (and a powerful lobby) on their side. Besides, with the dollar plummeting in value, switching to plastic may send the wrong signal to the rest of the world.

Eric Weiner is a correspondent for NPR's "Day to Day" program.

Copyright © 2004 Slate

[x Financial Dictionary]

Specie is used to back paper money, or money in the form of precious metal (usually gold or silver) which was considered superior to coins in base metal or paper money. The end of the gold standard (thanks to that fiscal radical, the Trickster) meant an end to the formal link between money supply and specie.

© Copyright 2004 Australia and New Zealand Banking Group

[x Wikipedia]

Fiat money or fiat currency, usually paper money, is a type of currency whose only value is that a government made a fiat (i.e. decreed) that the money is a legal method of exchange. Unlike commodity money or representative money it is not based in another commodity such as gold or silver and is not covered by a special reserve. Fiat money holds its value so long as holders of the currency feel that they can find an exchange partner for it at some later time. Fiat money, by definition, does not have any intrinsic value, nor is it backed by anything other than the confidence holders have in the economy which is covered by the government which decrees it to have value. Its value lies solely in the expectation of later use. Most currencies in the world as of 2004 are fiat monies. However, the situation with major currencies, such as the euro, the United States dollar and the Swiss franc is more complex.

Copyright © 2004 Wikipedia