Some of the jobs given to forensic accountants, actually have less to do with accounting than you might imagine. For instance, the firm that I work for was asked to look at the data to do with late night trading for pubs and clubs and draw some conclusions and/or suggestions. We determined that from a purely economic efficiency point of view, that it would make more sense for pubs and clubs to remain open all through the night, so that people weren't all vomited out into the streets where they would find inadequate public transportation to take them home and where the combination of alcohol and coldness made people more irritable and more likely to be involved in street violence. 24 hour trading actually has the net benefit of spacing out people's exiting times from venues and provided that public transportation is adequate, that translates into far less associated on costs due to hospital admissions.
Accounting and Forensic Accounting is sometimes the art of looking at the movements of costs and prices and trying to suggest better and greater efficiencies to be gained. In that respect, forensic accounting can be like management accounting while travelling backwards.
One of the jobs that we've been given, along with a bunch of other forensic accountants, is the job of deciding whether or not to finally ditch the five cent coin like New Zealand did and/or to suggest some overhaul of the existing system.
To be fair, the Reserve Bank of Australia has been testing the waters with this kind of thing for a while. The planchets that the Royal Australian Mint uses are based on a standard to do with the Pound Stirling which dates from 1849 and are king of rapidly becoming increasingly unfit for purpose. A few years ago they released a few 25c commemorative coins to basically test the public's reaction; who were as you might expect, completely ambivalent.
At the heart of the coin conundrum is a mathematical mystery called the change-making problem. That problem looks at how many coins is the fewest for any given transaction; given a series of standard coins. The change-making problem (that is the question of finding the minimum number of coins of certain denominations, that add up to a given amount of money) has been around for hundreds of years. Since coins are the physical assets of a universal token exchange system, then designing an idea system should a snap? No? The 1–2–5 series of coins relies on the fact that in base-10, these are the preferred numbers because they are factors.
Famously, Coca-Cola approached the US Treasury and the President to and asked them to mint a 7.5c coin especially for use in vending machines. They were turned down. From 1851-1889 the United States minted 3c coins and $3 because of postage rates dropping from five cents to three cents.
In the case of a 3c coin, having a step between a 1c and a 5c is much of a muchness in either case if it be 2c or 3c. In the case of Coca-Cola, while on the face of it it seems highly self-interested (because it is), the knock-on effect would be that a 7.5c coin would have become the default price for things in vending machines; in much the same way that quarters would come to fill that role in America later on in the century.
Those two stories while they're not directly relevant, actually illustrate one of the expectations that we have for coinage. Yes, coins are the physical embodiment of the idea of some small amount of money but that physical embodiment is also asked to do some small amount of work; by not just being a physical transfer of some small amount of money but actually being the physical keys which open the door for the transfer of goods and services.
The coins that you are likely to get back at most NCR automatic cash register machines are a 5c, 10c, 20c, and $1. The coins that you are almost never going to get back are the 50c and $2. This is because the NCR automatic cash register machines are specifically designed for American change and will give back a Penny, Nickel, Dime, and Quarter. America does have a Half Dollar but it is virtually never used and it has a Dollar coin which is deeply unpopular for reasons that I simply fail to understand.
The truth is that countries like Australia, Ireland, and a lot of Europe, simply eliminated their 1c and 2c coins a long time ago. New Zealand took the action of removing its 5c coins as well, and Japan removed all of its fractional currency
(the smallest coin is a 1¥ coin but once upon a time, that Yen used to be made of 100 Sen) and is now on the path that places like Italy was and South Korea currently is, where the base unit of currency is so small that it is useless.
Underlying all of this is the basic story that money itself is just a useful universal legal fiction which acts as a universal token system. One Wurnik as the currency of a fictional country called Elbonia, can be worth practically anything that a writer of fiction wants it to be. In fact 1 Wurnik could be massive or miniscule and the people of Elbonia would take it on faith that their fiduciary currency would be worth exactly as valuable as everyone else thinks that it is.
Since the value of the currency is itself a useful universal fiction, then the physical tokens (that is, the coins and notes) can also be whatever a nation devices them to be.
The American Dollar which is 100 cents (and technically 1000 mils) has the primarily used physical tokens of 1, 5, 10, 25 because going back to the invention of the United States when the Spanish 8 Reals (otherwise known as the Spanish Dollar, which takes its name from the Thaler which kind of became a generic name for a big coin), it was clipped into quarters to make smaller change.
Australia inherited the British Pounds, Shillings, and Pence, system; and made its currency backwards compatible with the existing coins by making the Shilling and Ten Cents as the direct equivalents before and after decimalisation (for the second time). Britain carried its Pound over with a 1:1 equivalence and adjusted its coins accordingly. Britain also uses a 1-2-5 series of coins but still has its 1p and 2p coins. In some respects we are already ahead of Britain when it comes to the kinds of coins that we should use, even though we are using an inappropriate series of planchets.
The data that we have been given suggests (unsurprisingly) that the most common ending after the decimal point is .00 There is also a spike at .50 and smaller spikes where the amounts end at the ten cent increments. That would suggest the prices stated are already self-adjusting with respect to what lies beyond the decimal point. This is already obvious to anyone who has bought any tangible big thing; nobody would honestly expect to see the decimal point when buying a house, or a car, and to a lesser extent whitegoods. At the restaurant that I was at on the weekend, prices also didn't have the second digit after the decimal point and for main meals they didn't have the decimal point stated at all.
All of this is to be expected because the amount of change that people are prepared to carry around with them is not that great. People might dare to carry as much as a thousand dollars in notes but they'll almost never carry any more than about twenty dollars in loose coins.
Admittedly that almost 30 years into the project of eliminating smallest of coins, absolutely nobody is lamenting not having a 1c or 2c coin any more. The last bastion where you actually see individual cent prices is at the supermarket and even then, people buy so many items that the existence of a coin to represent that last digit is annoying to lots of people. The 5c coin has virtually exhausted its usefulness and I do not think that we would lament its passing either.
Sorry, but you need to go now.
Curiously, if we wanted to improve the efficiency of the currency by introducing some crazy go nuts bonkers coin, then just like Coca-Cola suggested introducing a 7.5c coin, the coin that would currently produce the outcome of the fewest coins needed per transaction would be a $1.80 coin. At that amount, the fewest number of coins that would be needed on average to give out change, falls from 3.7 to just 2.1 On average, you would need it plus some other coin and maybe another but only occasionally.
I also think that it would be useful if we reduced the size of the existing fractional coinage. New Zealand has already got rid of their 5c coin and reduced their coins and several years on from doing that, the country carries on because its almost unremarkable.
We were asked the question of whether or not we think that people would benefit from replacing the $5 note with a coin but considering that the life of a plastic banknote is already beyond 25 years, there seems little benefit to be gained.
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