Purpose of face value-Please Perth Mint,give me an answer :)

Discussion in 'Silver Coins' started by dragafem, Apr 5, 2013.

  1. dragafem

    dragafem Well-Known Member Silver Stacker

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    Im trying to find out what is the real reason of having a face value on a silver or gold coin.I have read the Perth mint blog about it but there was no answer only blah-blah-blah...Perhaps it is for future reference but what that would be?

    Please Bron, shed some light on this for me ,thanks .
     
  2. doomsday surprise

    doomsday surprise Well-Known Member Silver Stacker

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    Because its legal tender. Otherwise it would just be a bullion product.
     
  3. Matthew 26:14

    Matthew 26:14 New Member

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    For what's made to be a "coin" it must be legal tender. If what's made is not legal tender it is then just a round, medallion or whatever you'd like to call it. Also if its a coin, to copy it is counterfeit but to copy a round would only be a breach of intellectual property/copyright.
     
  4. dragafem

    dragafem Well-Known Member Silver Stacker

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    Good points...but why is the low face value compare to the real value? perhaps that is one would get for it when it gets "recalled"(confiscated is too harsh word)...

    how is face value determined? remember,1990 1oz kook-$5 but the 1991 only $1 face value...why is the change after a year?

    why is the face value changing on a diff coin if it is there only to make it legal tender? why not just put $1 or $100 on all of them regardless weight and real value?....there's gotta be another("hidden") reason....
     
  5. Golden ChipMunk

    Golden ChipMunk Well-Known Member

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    Sori this my opinion only.
    When it get recall for example an oz face value $1, that how much you will get. :lol:
    That how they make the revenue if all fail. Something like Cyprus banking ;clever isnt it. :cool:
     
  6. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    Don't mean to dive bomb your thread, but I have another question on this topic.
    Why is a bullion coin worth more than face value if it is infact legal tender?
    I know the metal value is worth more than face value, but, given it is supposedly illegal to melt down or destroy legal tender, does Perth Mint's sale prices suggest they turn a blind eye to the legalities?
     
  7. libertadiac

    libertadiac Member Silver Stacker

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    I thought it was to facilitate stackers taking $10,000 face value, ie
    10000 x $1 1oz silver coins or 50 x $200 gold coins or variations on these
    when leaving the country. Many countries seem to have the same limit for declaration. Quite considerate really.
     
  8. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    My initial thoughts (and I'm sticking with them) were for beneficial CGT treatment. :D
    It's not an investment if it is an AUD, legal tender, fiat for fiat swap. :p
     
  9. Golden ChipMunk

    Golden ChipMunk Well-Known Member

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    Oh another question to add up. If you sell back the coins to Perth mint they will melt them without
    recording them or recycle selling them back
     
  10. bron suchecki

    bron suchecki Active Member Silver Stacker

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    These are the two main reasons. Anyone can make a round disc of gold, but it is a lot harder to get a Federal Govt to agree to issue legal tender (keep in mind we are a State Govt entity). Being legal tender if you copy it then the full force of the law is against you and the penalities are a lot higher than just copying someone else's round disc design. Legal tender also means the Federal Govt guarantees its specs/purity, so if a coin was underweight or under purity the Govt would have to make good. All of those factors appeal to investors and which is why legal tender tends to sell at a premium to rounds. Also, note that we have to pay Federal Govt seigniorage on each legal tender coin sold.

    With the early bullion coins there was a change in face value because it was realised that the face value was too high and if metal prices declined, then the Federal Govt would have to pay out $5 face value when the metal in the coin was less and they would lose money. Face value is basically a floor price which the Govt guarantees to pay you in fiat.

    Normal coins have a face value a lot higher than the metal content, multiples higher. The difference between metal content and face value is profit to the issuing Govt. Circulating coins are usually only small value so not much risk to the Govt if metal content value decreases.

    Example, lets say the Perth Mint decided to issue a 1oz bullion coin with a face value of $2500 when metal prices were $1500. That $1000 difference would go to Govt as seigniorage profit. Now if the gold price dropped to $1000, then the Govt has to pay you $2500 in fiat but can only sell the metal in the coin for $1000, so they lose $1500. But then they made $1000 on initial issue, so overall would lose $500.

    The above example applies to circulating coins, but since we are talking about 10c and the like, and there isnt a lot of dollar value of those small coins out there, the risk to the Govt of a loss if they ever decided to call them in is small. In the case of precious metals, the likelihood of people "redeeming" them for $2500 face value if gold prices fall is high. So that's why the face value on bullion is less than metal value.

    But with a lower face value the Govt still has a risk the metal price could fall lower than face value, so they minimise that risk by putting a really low face value relative to metal prices. Either way the Govt has a risk by putting a face value "guarantee" on a coin, they just prefer to go with the lower face value.

    Of course, you could argue that since Govt generally money print over time in the long run metal price will go up, so the lower risk option is to issue higher face value coins. Plus in the meantime they get to "use" the $1000 seigniorage profit (more likely waste it on pork barrelling). However would there be a market for a say $2500 1oz coin? You're guaranteed to get $2500 no matter what but keep the "upside" if the gold price goes up. However you have given up $1000 extra on which you could have earned interest in the meantime. Is that a fair amount to pay for the protection against a decrease in metal prices?

    Thanks for the question. I'll fix up the text above and add it to my new section on the website http://www.perthmint.com.au/research.aspx where I want to build up a lot of basic educational material.
     
  11. bloomst

    bloomst Well-Known Member Silver Stacker

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    There was an newsletter from Perth Mint about 2 weeks ago about this.
     
  12. Lunardragon

    Lunardragon Well-Known Member Silver Stacker

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    Excellento
     
  13. ausau

    ausau Active Member Silver Stacker

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    Hi Chip,
    I thought this was true too but they do it when it suits them, I bought dragons from the PM maybe 2 months ago!

    Blake.
     
  14. dragafem

    dragafem Well-Known Member Silver Stacker

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    Bron,thanks for the comprehensive answer. It would be real sad to see the Govt to lose any money....well,if I recall it correctly they could have lost some on the early $200 gold coins(koala etc.)
     

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