Since the time I’ve written on this site, there have been several articles written about coin shortages in the Philippines. Indeed, it can be frustrating at times to need to buy something and the shop or vendor does not have any change, particularly if you’ve just visited an ATM. Is there truly a shortage of coins?
According to the BSP, there are currently over 16.3 billion Peso (Piso, Sentimo, tag.) coins in circulation, equivalent to 171 coins per person, if distributed equally. Compare this to The Philippines’ ASEAN neighbors, which average a per capita 50 coins per person in circulation. In other words, in the Philippines, there are nearly three times as many coins in circulation as in neighboring countries. (As a bit of trivia, if ALL Pesos in existence (coins and bills) were to be distributed to the population equally, each person would have P7,944 in bills and P202 in coins… The average Peso banknote value is P253 and average coin value is P1.16… The more you know!!!).
Why the difference? Several reasons.
The word Peso is Spanish, meaning “weight”. When coins were made with metals of intrinsic value, such as gold or silver, the weight of the coin determined its’ value. However, there is a problem with making coins from metal using this method. What if the value of the metal exceeds the value stated on the face of the coin? The term for this differential is seigniorage: The coin costs more to manufacture than it is worth at face value. The intrinsic metal value exceeds what the face of the coin says it should. In the old days, it was not uncommon to file away or clip away parts of coins to either adjust their value to the metal value or to make “change” (or to shortchange unwary individuals or merchants). Hence, the term “Piece of Eight” for the old Spanish coins. The 8 Reales coin was often clipped into smaller pieces to adjust its’ value. (This also gave rise to the term “bits” in the United States, as in “Shave and a haircut, two bits”. The early American colonies used both the Spanish 8 Reales coin and the Austrian Thaler (Dollar), roughly equivalent in value, as their circulating coinage.) Of course, very few countries use gold or silver any more for their coins, except for bullion or commemorative coins for collectors, and the Philippines is no exception.
The first coins issues specifically for the Philippines were in 1861, by Spain, using Igorot gold. The first silver coins were issued in 1864. Prior to that, most circulating coins were Spanish gold or silver issued in the New World. Generally, the country or region where minted was not indicated. The coins generally had a portrait of the monarch on the obverse and the coat of arms on the reverse, along with the date.
All current coins in circulation in the Philippines are made from various alloys of copper, brass, nickel, aluminum, or steel. However, a quick glance at the commodity prices for these metals shows an interesting trend over the last decade or so: The prices have skyrocketed for these metals (especially copper), in addition to the prices for gold and silver (A problem not faced by currency, which is just paper and ink). This has led to a problem: Since the intrinsic value of the metal in the coins now exceeds their face value (P1 and less), the BSP has caught people melting the coins and shipping the ingots overseas. (This problem is not, by the way, unique to the Philippines… In the United States, there are shortages of pennies and nickels, both of which cost nearly twice their face value to manufacture, largely due to seigniorage.)
So, since there are entrepreneurs reading this article that may get ideas about getting rich, I have the following to state: DON’T DO IT! Defacing Philippine currency, including coins, is highly illegal, and the BSP pursues those doing so. The reason is simple: It costs the government a substantial amount of money to replace the coins removed from circulation. In part, this is also one of the reasons there are controls on the export of pesos (Coins, rather than bills). The BSP has not released the actual cost of manufacture for each denomination, not wanting to encourage hoarding, but they have admited that seigniorage is a big problem.
Another reason of the shortages of coins is the lack of value in the smaller denominations, due to inflation, especially those values under 1 Peso. At an exchange rate of P1 = US$0.02 (roughly), the 25 Sentimo coin is worth less than 1/2 of a cent, which does not buy much anymore. Of the 16 billion coins in circulation, nearly 7 billion are the small denominations. Current circulation, according to the BSP, is largely among charities. In fact, the BSP is trying to remove these coins from circulation by encouraging banks and supermarkets to collect and donate the small coins, being reimbursed, in kind, by the BSP via check. In 2009, nearly P400,000 was collected in 1 and 5 Sentimo coins to build housing for the poor (Seven dormitories in the Cordillera). Small denomination coins (P1 and less) are legal tender only up to P100. P5 and P10 coins are only legal tender up to P1,000. Therefore, the BSP aiding charities in this manner helps re-distribute the coins into circulation.
Finally, the BSP believes that many P1 coins are removed from circulation by the increased number of amusement machines (like video games) in the country. These coins tend to stay within the place of business rather than being put into general circulation.
The small denomination coins, under one Peso, are currently being gradually demonetized by the BSP. New coins and designs are being released in 2013, and one Peso will become the smallest denomination on the new coins. Why issue new designs? Well, in a word, counterfeiting. The BSP has caught numerous people counterfeiting the P5 and P10 coins. Since coins last much longer than bills, counterfeit coinage stays in circulation for a far longer period of time. Therefore, by changing the designs periodically, counterfeiters are forced to adapt and change. You can also bet that the metal contents in the alloys used will be changing in order to reduce the impact of seigniorage. The new coin designs have not yet been released to the public, but the BSP has stated that they will feature national symbols that are representative of the country.
So, some details about the currently circulating Philippine coinage:
1 Sentimo: Copper plated steel
15.5 mm dia., 2.0 g.
5 Sentimo: Copper plated steel
15.5 mm dia, 1.9 g.
The only current Philippine coinage with a center hole, it is often used for crafting native jewelery. This use is discouraged by the BSP, though it is not illegal as long as the coin itself is not defaced.
10 Sentimo: Copper plated steel
17 mm dia., 2.5 g.
25 Sentimo: Brass (Brass plated steel after 2004)
20mm dia., 3.8 g.
1 Piso: Cupro-Nickel (Nickel plated steel after 2004)
24mm dia., 5.53 g.
5 Piso: 70% copper, 5.5% Nickel, 24.5% Zinc
27 mm dia., 7.7 g.
10 Piso: Ring, Cupro-Nickel. Center Alumino-Bronze.
26.5 mm dia., 8.7 g.
When the P10 coins were first issued in 2000, rumors started circulating that the bronze center contained gold in the alloy. The BSP was alerted that many of the centers were being removed and sold to unsuspecting people as gold. Of course, this rumor makes no sense, however it illustrates the type of publicity that often surrounds new currency issuance. Another example is that many of the ”errors” discovered in the new bills issued in 2010 were resulting from limitations in the printing process and the bills’ security features, rather than actual errors. Nevertheless, the BSP received some negative publicity from the issuance. Finally, the dual alloy nature of the P10 coin has led to its’ use in the manufacture of native jewelery, removing a fair number of coins from circulation.