You can now look for coins of steel

NEW DELHI: Two rupee and five rupee coins will now be made of steel! Faced with a sudden shortage of two rupee coins, the coinage division, under the finance ministry, has decided to switch from producing nickel-based coins to steel coins. In case of nickel-based two rupee coins, it was realised that due to the intrinsic value being greater than the face value, a shortage in certain states such as Kolkata was emerging.

When intrinsic value becomes greater than the face value, people start melting coins and sell the metal to fetch a higher price than the amount paid for the coin. While intrinsic value refers to the market value of the constituent metal within a coin, the face value is the legally defined value of the coin relative to other units of currency.

“A sudden shortage of two rupee coins had emerged in certain states such as Kolkata. There was a greater demand for these coins. We realised that this could be a result of a greater intrinsic value of the coin. Thus, we decided to shift from production of cupro-nickel based coins to ferrous steel coins,” a finance ministry official told ET. In case of five rupee coins also, we feel that the intrinsic value has crossed the face value and as a precautionary step, these coins are also going to be converted to steel, the official added. As of now, all one rupee coins are steel-based, while two rupee and five rupee coins are made of cupro-nickel, a copper nickel combine.

According to Gresham’s law, when the intrinsic value becomes greater than the face value, the coins are in danger of being removed from circulation. This comes from Gresham’s saying that “bad money drives good money out of circulation.” While good money is defined as money that has little difference between its exchange value and commodity value, bad money is money where market value is lower than the exchange value.