Hass McCook is a chartered engineer and freshly minted Oxford MBA. He has been researching bitcoin over the past several months and recently joined the Lifeboat Foundation’s New Money Systems advisory board.
This article is the third in a series on bitcoin’s sustainability. Having previously examined the cost of gold production, here McCook looks at the sustainability of printing and minting physical currency.
Money makes the world go round, and for the past several hundred years, paper currency and coins were the physical manifestation of money. Once upon a time, most paper currency in the world was backed by gold and directly exchangeable for it. This system of backing currency with tangible, universally exchangeable reserves was known as The Bretton Woods system, and was used to help the world rebuild economically after World War II (United Nations, 1948). On August 15, 1971, US President Richard Nixon ended the Bretton Woods System (Ghizoni, 1971), in what is now known as “The Nixon Shock”, allowing all currencies to float freely, with only the backing of the faith and credit of their issuing sovereign state. This type of currency is known as “fiat currency”, i.e., currency that is given value by government decree (Keynes, et al., 1978). This report will not discuss the relative merits and drawbacks of gold-backed currency and fiat-money, only the triple-bottom-line impacts of each.
With the built-in “infinite” inflation of fiat money, more and more physical currency will need to be printed and minted every year, unless we move to a completely digital system of transaction. According to a research report issued by Smithers-Pira (2014) on the world security printing market, “digitisation and convergence are two megatrends that the security printing industry needs to come to terms with. They can be seen as a threat jeopardising the very existence of the industry, or as an opportunity to innovate and evolve in order to address risk in a broader context. In the near foreseeable future, however, security printing will continue to fulfil its critical role of preventing and detecting alterations, forgeries and copies, and support product authenticity”.
In terms of printing trends, countries like Australia and Canada use polymer-based notes which reduces both economic and environmental costs of physical currency significantly, with the United Kingdom poised to go polymer in 2016 (Allen, 2013). Coins, which have a high environmental impact due to the metal required to produce them, will most likely be phased out over the next 40 years. The reason for this is it currently costs the United States Government 1.83 cents to make a 1 cent coin, and 9.41 cents to make a 10 cent coin (Zielinski, 2014). Ireland has spent €11.8m to produce €7.1m worth of 1 Euro cent coins (Reilly, 2013). Over time, due to increasing metal costs, it will become untenable for governments to make real losses on production of currency. Some jurisdictions, like Australia, discontinued their 1 cent and 2 cent coins in 1990 (Royal Australian Mint, 2014), and as inflation continues on towards infinity, it will be less and less economically viable to produce such low denominations of currency, and therefore we might expect impacts due to minted coins to reduce over time.
According to the US Federal Reserve, the life-span of non-polymer paper money varies based on denomination, as shown below.
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