Prior to 1992 the Australian currency system had 1 cent and 2 cent coins in circulation. In 1992 the minting and circulation of these small denomination coins ceased due to rising inflation in the minting costs of the coins. [1] Today the coins have a limited legal tender status in certain circumstances, but are no longer actively circulated or minted.[1]
Image Source: [3]
Recently I have seen some fellow Steemians discussing the stacking of copper. This got me thinking about the Australian 2 cent piece and the potential financial benefit from hoarding these coins in 1991, given the inflation in our currency that has since occurred. I have crunched these numbers for us today so we can investigate the potential gain for investors who hoarded these prior to their removal from circulation.
Firstly, let’s get some context and take a look at some of the specifications of the coin:
Australian 2 cent piece specifications:
Legal tender value: 2 cent Australian.
Metal composition: 97.0% copper, 2.5% zinc, 0.5% tin.
Mass: 5.20g
Diameter: 21.59mm
Edge: Plain (no reeding)
Tail side design: Frill necked lizard with the number ‘2’.
Head side: The Sovereign, Queen Elizabeth II.
Source: [1]
Assumptions:
For these calculations we are only going to look at the copper component of the coin. The zinc and tin components are negligible. All calculations are in Australian dollars.
Calculations:
1) Calculate the mass of the copper component in the 2 cent coin:
The mass of copper per coin = 0.975 x 5.20g = 5.07g of copper per coin.
2) Next we determine the current price of 5.07g of copper in $AUD.
This calculator will allow you to determine the price of 5.07gram of copper in AUD:
http://coinapps.com/copper/gram/calculator/
(Price of copper per pound is $4.0720 AUD at time of calculation)
Therefore price of 5.07g of copper in AUD = $0.045515
3) For illustration purposes let’s assume you walked into a bank in 1991 with a $100 note and changed it into 2 cent pieces:
A $100 note will give you:
100/0.02 = 5000 coins.
Therefore total metal melt value of $100 worth of 2 cent pieces in 2017 is:
= 5000 x $0.045515 = $227.58
4) Calculate inflation effect on $100 in 1991 dollars up until 2017:
You can use the following online calculator: http://www.in2013dollars.com/1991-AUD-in-2017?amount=100
Using an inflation calculator to price the value of $100 in 1991 dollars in today’s dollars you get: $184.49. (So it takes an extra $84.49 to purchase the same basket of goods nowadays). As you can see the copper metal value in the 2 cent coin has outstripped inflation and has actually returned a premium to inflation. [2]
Now in reality these calculations just account for the melt values of the copper. These coins can actual retail for a much higher price due to the semi-numismatic nature of the coins. A casual observation of online commerce platforms such as Ebay and Gumtree shows that these coins can sell for around for $1.00 each for circulated coins (and sometimes much higher for uncirculated).
Let’s assume a retail price of $1.00 per coin. An investment of $100 in 1991 could theoretically net you a $4900 profit today. Now of course this assumes there is sufficient depth and liquidity in the secondary market to allow for the sale, which is probably not realistic. You more than likely would end up selling at a discount to retail price, particularly if you were forced to offload to a coin shop where their bid-ask spread dictates such a discount.
Again, these calculations have assumptions involved. Its not intended to be investment advice or to advocate that people hoard circulated currency and wait for small denominations to be withdrawn from circulation. It is merely meant for educational purposes to illustrate how inflation affects fiat currency and how even base metals like copper can provide protection against inflation. As always please consult a financial planner licensed in your jurisdiction before making any investment!
Let me know what you guys think about my number crunching. I have checked my calculations and process and all care has been taken to ensure its accurate but that is not to say I haven’t made an error along the way!
Thanks for reading! Please upvote and follow if you like my work!
Apsis.
References:
[1] Australian two-cent coin – Wikipedia
Source: https://en.wikipedia.org/wiki/Australian_two-cent_coin
[2] Australian Inflation Calculator – in2013dollars.com
Source: http://www.in2013dollars.com/1991-AUD-in-2017?amount=100
[3] Australian 2 cent piece – Royal Australian Mint
Apsis Algorithmic Trading 