Why Do Certain Coins And Banknotes Become Redundant?
Posted by Allison on 6 April 2009, 14:51
People in Britain who are of a certain age will no doubt remember the old halfpenny – a tiny coin which almost seemed lighter than a feather, and was the smallest of all the coins in circulation at that time.
So why was it withdrawn from circulation?
In the case of the halfpenny, the reason was because it ended up having virtually no value at all. This is in fact the main reason why so many lower value coins are withdrawn from circulation all around the world at various times during the course of history.
Of course the lifespan of the smallest coins of any currency can vary remarkably. The British halfpenny lasted only around a decade before the British people stopped using it practically altogether; it was relegated to being held in jars at home as no one liked using such a small coin. It was eventually taken out of circulation when inflation meant that the increasing cost of everyday items made the coin useless.
This is by no means a unique event. Many coins have found themselves made worthless by the rate of inflation throughout history, and even in modern times this still happens. A more unusual situation occurs when a particular currency is used in more than one country, and one of the countries stops using a particular coin while the others carry on using it.
This has happened in modern day Finland, where the Euro is now in use. While the smallest Euro coins in use are the one and two cent coins, there is a law in Finland that requires all prices to be divisible by five cents and no less. This means people simply don't use the one and two cent coins, although they are still legal tender in this country and the one and two cent coins are still used throughout the other countries that have given up their own currency in favour of using the Euro.
This reason for shunning a particular coin or coins is quite unusual though. By far the most popular reason for a certain coin to be withdrawn from circulation altogether is inflation. As time goes on and the prices of goods go up, coins that used to be used every single day become less useful. In turn, it also means that other coins of larger denominations are sometimes created to fill a need that didn't previously exist.
But does this same rule apply to banknotes? They are, after all, generally of a much higher value, and so it surely follows that most banknotes remain in circulation for a long time.
While inflation can also do away with the humble banknote, it can be withdrawn for other reasons too. One of the most robust and long lasting banknotes in Britain, the pound note, eventually bit the dust after a 'sterling' one hundred and fifty years in circulation. It changed design and size several times during its reign, but its last incarnation – the small green note bearing the Queen's face – finally made its exit in 1984, to make way for the new pound coin.
The reason for its replacement was not down to inflation – rather it was the simple reason that coins were longer lasting. Money costs money to make too – and this was one cost cutting measure that did work in the long run. While the move wasn't welcomed at the time, the pound coin is still with us today and is more than happy sitting in our pockets.
But it isn't just the smallest denominations of coins and banknotes that are occasionally withdrawn from circulation. Sometimes the largest valued banknotes are withdrawn too – albeit for other more sinister reasons.
This can happen quite regularly in times of war. During the Second World War some banknotes were taken out of general circulation to make it more difficult for forgery to take place. Similar events have happened in other countries and in other times; it is not uncommon for the larger valued banknotes to be taken out of circulation during wartime in any country in order to make robbery more difficult. Trying to rob a bank when the largest denomination of banknote held there is £5 instead of £50, would make it altogether more difficult to get away with a large amount of money.
The issues surrounding criminal activity have often led to banknotes being withdrawn from circulation. As time has gone on governments have become more adept at creating banknotes which are harder and harder to forge, but this wasn't always the case. Even today many banknotes are forged, but there are far more types of built in protection to get around than there used to be.
This explains why some large denomination notes were withdrawn in the past, because it was feared that they were too tempting an amount to try and forge. At one point there was a £1000 note in Britain; you can see why it was hastily withdrawn when the threat of forgery became too much to bear.
Even though there are many more measures in place to combat fraud and forgery nowadays, it is still big business. This is why some countries withdraw certain issues of banknotes in order to replace them with new improved notes of the same denomination.
Finally, there are also occasions when notes and coins are withdrawn because they simply become too old and too weary to remain in use. In this case the actual issue isn't withdrawn; it's simply a certain number of coins or banknotes of that issue which are taken out of circulation. They are replaced by new notes and coins which are more up to date, but which have the same face value as their old counterparts.
So you can see that there are a myriad of reasons why coins and banknotes become redundant – from the simple case of old age to the need to be protected from forgery. It's clear that they will continue to change as the years go on.