Banks refused legal tender coins by the UK Royal Mint

bron suchecki said:
FYI, this "innovation" started some ten years ago when the French Mint started issuing what they called "face value coins". IMO they make no commercial sense when you consider they represent a contingent liability to the mint/government, that is why face values on bullion coins have traditionally been way below metal value.
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Source: http://news.coinupdate.com/french-regions-gold-coin-offered-at-face-value-1575/

This (new) issue is the first gold coin product from the Monnaie de Paris which is to be sold at face value. The coin contains an amount of gold bullion which is similar to the face value (at current bullion rates, the gold content is 165).
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At least their gold content was close to the face value. The silver coins for 10 contain nowhere near 10 worth of silver.

I can see why the Mint wouldn't want the silver content to be close to the face value, if spot rises all your hard work is wasted as people melt the coins for their silver value.

The public doesn't really care about coin collectors or any other anorak pastime, but the main selling point of this series was that you swapped 10 worth of paper and got 10 worth of English coinage, not 3 worth of product that looks like a coin with 10 written on it that is absolutely meaningless. and you can't even take to the bank.

Unless the design is spectacular I will probably stop supporting this series, or at least only get one or two. It is going to be a pain flogging the rest if people think they are in some way not 'genuine' coins.
 
I think a condition of being granted a banking licence should be an obligation to accept for deposit any legal tender issued by the country, and a condition of being granted the privilege of being able to mint legal tender is that you have to stand in the market for them. So if a mint wants to play the "printing money" game of issuing 100 coins on 5 worth of silver, they should be obliged to honor them. Simple.
 
I wonder if the mint in question would accept their own "legal tender" coins to purchase another coin? It would be funny if they refused.
 
willrocks said:
I wonder if the mint in question would accept their own "legal tender" coins to purchase another coin? It would be funny if they refused.
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If I can get my hands on one I just might try that in Berlin. The world is watching :P
 
Do it without the packaging and film it "Mint refuses to accept payment in its own legal tender coin" In a separate announcement, GoldStackers distributorship with X mint has been revoked.
 
bron suchecki said:
Surprises me that legal tender can only be forced to accept for a debt in court. In that case the guy should not pay his credit card, let HSBC take him to court and then he can pay the debt with those coins.
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Plus the legal fees for HSBC. Not a smart move.
 
SilverDJ said:
bron suchecki said:
Surprises me that legal tender can only be forced to accept for a debt in court. In that case the guy should not pay his credit card, let HSBC take him to court and then he can pay the debt with those coins.
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Plus the legal fees for HSBC. Not a smart move.
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Only if he lost the case, and HSBC was awarded costs.
 
Logical move here by a competitive mint is to execute the product correctly. Introduce a $50 silver coin, get an agreement with at least two of the big four banks that they will be accepted for deposit, and issue them with a credit card payment surcharge on credit card sales to deter points scraping. Stand in the market for them from the banks that redeemed them as deposits. Use the windfall in cash flow for a higher dividend to the state government, and use the Gold Corporation guarantee to stand as market maker of last resort for bank run style redemptions. At worst it's an interest free loan with built in deflation of capital repayment value.

Limit the annual mintage to an amount that fits a risk profile - say capped at 100,000 for a face value of $5m, delivering a ~$3m cash flow boost after ~$2m in minting overheads. If silver hits $50 they won't get redeemed anyway, at which point a $100 version can be introduced. Buyers get fiat with a partial intrinsic value that could one day exceed the face value, at which point melt losses etc somewhat reduces the number in circulation, should a redemption run occur if the price of silver crashed again.

Pay goldpelican $250k in consulting per annum. That's a 5% fee for a 150% return.

Hurry up before RAM does it.
 
Well, if the Bank reserves the right to refuse the other Legal Tender then I reserve the right to refuse their fake money. I mean, who wants they're funny money anyway ?
 
It is too risky if you want to run it legitimately and will not stiff buyers later by not accepting it back at face value. Firstly, you have a contingent liability to basically offer a refund, so at a minimum some if not all of your profit cannot be booked as accountants will require you to recognise the possible liability. Indeed with banknotes the RBA writes off the printing cost and recognises the banknotes as liabilities. Basicially with these coins this is exactly what you are doing and I would argue the govt/reserve bank, as the issuing authority, should be recognising the liability. But lets assume you book all the $3m as profit, and lets assume within the $2m costs is $1m of metal value.

If the price does not perform and investors give up and start "selling" them back, then for every coin you have to pay $50, sell metal for $10 (assuming prices haven't tanked) and book a $40 loss in that year. Actually it is a good scam to boost profits today and leave losses into the future.

Even if you recognised the liability and put aside the $3m profit, you can only afford to take back 75,000 coins ($3m / $40) before you would actually start to book real negative cash flow losses. In the meantime yes you might get some interest off that $3m set aside, but the whole scheme will only work if investors will not redeem them for a long enough period that the interest earned/saved on the $3m has accumulated to equal $1m, which is unlikely.

Finally, from a modelling point of view, the highest probablity of investor redemptions will occur if the silver price falls, so you get hit at the worst time when the cost recovery is worst. The business model has no counter cyclical element to it.
 
Actually it can work if you take it to the extreme. Issue 100,000 1oz silver coins with $1,000 face value. For simplicity lets assume $10 metal and $10 minting cost. So you would make $98,000,000 profit which at 2% official rate earns $1,960,000 in one year giving you $99,960,000 at the end of the first year. Worst case say the silver price drops 50% to $5 within one year then you would book a loss of $995 on each coin: $99,960,000 reserve less "refunds" of $100,000,000 plus $500,000 from sale of metal = $460,000 overall profit.

Question is, would people pay $1000 for a 1oz silver coin with $1000 face value?
 
Your forgetting 1 thing Bron, the government will not like people having access to such high value currency. Think how easy it would be to engage in high value of the book cash trades.
 
Well we are only talking about 100,000 coins so it is not a lot of money that can be used for dirty transactions.

BTW, banknotes work because the face value is so much higher than the cost of making the note. The issue with the dollar for dollar coins is that their face value is just not high enough relative to the production cost to cover the risk. Hence why they have to reneg on the implicit understanding of what legal tender is.
 
In 1986, Japan sold over 9 million 100,000 yen (equivalent of $1000) face value coins.
The coins are not silver, but gold. Even so, they made billions of dollars!

Even when they discovered that someone deposited over 100,000 fakes, it didn't really matter.
After all, the fakes were of the same amount of gold...
 
By issuing now, if they are pretty with pretty packaging and commemorative, between many and most would not see redemption for 10-20 years. If the metal content were close enough to face value, perhaps not less than 20%, I would think that people would be more inclined to sit on them rather than cash them. As you would continue to mint, with a redemption of say not more than 20% per annum, it would be a great interest "free" fund raising scheme. However, you would have to make sure you did something worthwhile with the funds, e.g. invest in profit-realising assets, else the pack of cards could easily come crashing down. Perhaps you could, maybe, lend the money on secured assets such as houses and machinery at 10-20% pa. Oh gee, I just invented the banking system pre-deregulation.
 
bron suchecki said:
Actually it can work if you take it to the extreme. Issue 100,000 1oz silver coins with $1,000 face value. For simplicity lets assume $10 metal and $10 minting cost. So you would make $98,000,000 profit which at 2% official rate earns $1,960,000 in one year giving you $99,960,000 at the end of the first year. Worst case say the silver price drops 50% to $5 within one year then you would book a loss of $995 on each coin: $99,960,000 reserve less "refunds" of $100,000,000 plus $500,000 from sale of metal = $460,000 overall profit.

Question is, would people pay $1000 for a 1oz silver coin with $1000 face value?
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The metal content of silver coins (as in 10c, 20c, 50c etc.) are much closer in value to face than that, the only issue is storage. I can't find the figures I ran now but in 2011 the metal content was worth more than 50% of face value and even with the commodities crash it's still not a bad deal compared with many face value coins. Only trick is figuring out how to store your life savings in 20 cent coins.
 
Just crunched the numbers, at the peaks in 2011 a 20 cent coin was worth between 15 and 17 US cents in scrap (close to 8.5 grams of copper at about 1c a gram and nearly 2.9g of nickel at 2.85c a gram). At the time the dollar was over par, but not by much. Not many other face value coins would give you better than 75% value in metal content.

Luckily for me my life savings are pretty pathetic so if I wanted to keep it in 20c pieces it wouldn't be so hard, but exactly practical for everyone though.

Only the 5c, 10c and 20c have the equal and optimum amount of metal to face value though. The 50c is less than 50% heavier despite having 250% higher face value.
 
The Crow said:
^^^
You have too much time on your hands .....
:)
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Oh sure, you laugh now, but when the collapse comes and I can spend endless handfuls of spare change on all the tooth melting saltwater taffy I want you'll wish you'd gotten rid of the water heater to store 20 cent pieces like I did. I might be taking cold showers, but my fiscal piece of mind is toasty warm.
 
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