Commodity money

Commodity money with intrinsic value seems to be thing of the past and the fiat version rules in today’s economies however from time to time due  to rapid movements in prices of base metals we can witness resurrection of hard cash of a sort. This usually occurs in case of small denomination coins – their face value is usually very small and sometimes material they are made from is worth more than that. It has been observed in case of US, Canadian and UK copper pennies which led to replacement of copper with copper-plated steel. Now we can observe similar phenomenon in case of Polish 1 and 2 groszy coins minted from brass (an alloy of copper and zinc).

Considering current market prices for copper and scrap value of brass 1 grosz brass coin commands a premium of 80% and 2 grosze coin of 17% over their respective face values. It appears that large number of those coins ended in melting pots resulting in significant losses to the issuer. This of course has been noticed by the central bank so starting from 2014 those coins were redesigned and are minted in brass-plated steel. There was a plan to scrap them altogether but it has been rejected for some legal reasons. The fact is that such small denominations are not economically viable as they tend to disappear from circulation even if made from cheap metals. One can’t buy anything with any reasonable number of such coins and they are not accepted by vending machines, so for the sake of convenience people who get them as small change tend to put them away instead of spending them.