Currency Denominations
Nick, Peter and Fraser discuss why you never see £50 notes but get lots of €50 notes.
For more information on Aleph Insights visit our website https://alephinsights.com or to get in touch about our podcast email podcast@alephinsights.com
Transcript
Hello and welcome to the Cognitive Engineering Podcast produced by Tell Me Studios for Aleph Insights. In this series of podcasts we take a look at interesting topics and discuss what we think they tell us about analysis and decision making. I'm Fraser McGruer and I'm here with Peter Coghill and Nick Hare of Aleph Insights and this week we're discussing the rationale behind currency denominations. So Nick, can you lead us in and tell us about
Speaker B:your recent visit to Ireland? So I was in Ireland for a conference that was hosted by the firm Ronan Daily German and it was a very interesting conference but actually one of the things that I found most interesting about going to Ireland was that I noticed the way that people use banknotes is very different to in the UK. I've been to the Eurozone before, just to explain to foreign listeners, Ireland is in the Eurozone so it uses euros as its currency whereas the UK of course isn't so we have pounds here. I got money out in Dublin and it included some 50 euro notes and I was initially a bit annoyed about this. I thought well who's going to take those they're too big but I discovered that actually people use 50 euro notes all the time. You know they'll happily pay for a newspaper with a 50 euro note and you know shopkeepers won't complain they'll just hand over the change and this is in marked contrast to the UK where we hardly ever use 50 pound notes. You don't get them out of bank machines, shopkeepers hate them, you know you certainly would never pay for a newspaper with a 50 pound note. I mean I very very rarely, only a few times in my life have I ever actually had a 50 pound note and it's typically if you're drawing money out from the bank or in my case when I came second in a poker tournament and got 700 pounds in cash and the question is why right I mean 50 pounds isn't that different to 50 euros especially not these days so why is there some good reason for this or is it just a kind of weird convention that we've got to. So and of course you forgot when you've done
Speaker A:major drug deals that's when you've probably seen them. Oh yeah yeah definitely in suitcases. Yeah so also the question is why is this case? You've asked the question well let's set our
Speaker C:brains to the task. Peter go for it. Well I suspect it's probably a deliberate policy in UK to not have in circulation a large number of notes and possibly also a sort of cultural thing with the association of large notes and nefarious activities but I think mainly it's we just don't have many in circulation. The Bank of England website has got figures on this but the because the large is not good is the large notes facilitate large cash transactions which facilitate things like fraud tax evasion and various things the government doesn't want to
Speaker A:happen. This is what you've seen on the Bank of England website? Yeah yeah okay so this is so one
Speaker C:thing one thing you can do to prevent to make it harder for criminals to do this is get rid of cash have less cash in circulation of smaller denominations if if if the only cash you could get was one penny pieces you wouldn't get large suitcase you wouldn't get suitcases full of large amounts of money you could probably get a few hundred quid in their tops and it would be
Speaker A:incredibly heavy. So that answers if we accept that and that sounds perfectly reasonable that accepts why it's not the case in the UK so that leads to the question is is there a comparison of circulation let's say per capita of similar domination denomination notes first of all in the eurozone but also second is Ireland unusual compared to other eurozone countries because I haven't noticed a massive amount of 50 euro notes in in the rest of the eurozone is it just the Irish are like this so I don't know if these are the correct questions but those are the two
Speaker C:questions I'd like to ask. Well this is where it got interesting when I started digging into the figures if you compare the figures between the eurozone and the UK for cash in circulation in the UK there's approximately 68 billion pounds in circulation in cash in various forms which works out at about 1,000 pounds per person in the eurozone there's a short of a trillion euros in circulation which actually works out at around 3,000 euros per person in circulation so there's three times as much cash per person knocking around in Europe there is in the UK which might explain that so Europe appears to be a sort of cash heavy economy compared to compared to ours three times as much so that might explain this affinity or being used to handling more notes and bigger notes than we are in the UK. So just to be clear because we're
Speaker A:talking about availability of cash that doesn't necessarily translate to or does it the amount of
Speaker B: of the Brinks mat robbery in: Speaker A:it sounds awesome I mean I don't want to go off on too much of a tangent but I would have thought it must be a shrinking business though and it must be quite a costly way of it must be it's quite a heavy cost it must be shops and ultimately the consumer who bears
Speaker B:the burden of that well yeah I mean the question is then where does the change go who takes change to the bank the answer seems to be quite a lot of people which really surprised me yeah so change does make its way back to banks by and large so people go in with rolls of you know bags of 20 of 2ps and so on and you know give them to the bank and of course then they find their way back to shops so coins tend to go in a different direction to notes but the the I mean I personally I'm a I like to really confuse shopkeepers by giving change out that means I'll get less change back so you know if something costs 53p I'll you know I'll happily give them sort of you know what one pound three p to get 50p back I thought everyone did that well yes I mean I think but I think if there were people going to I mean I end up almost breaking even on change I have a pocket full of change and it doesn't get much bigger or smaller yeah and if I know if I can do something really if something comes to you know five pounds 87 and I happen to have 10 pounds and 87 in change oh it's a brilliant feeling life is sweet I have a different
Speaker C:approach I empty every day I empty my pocket of change when I when I go to bed or change trousers and I take the anything smaller than 20p goes into a large pot when that pot gets full it's worth approximately 40 quid and that buys me a meal out after taking it to asda and putting it
Speaker B:through a coin counter right so so that that and coin these coin machines obviously are another route for that coins take back into the uh back into the the retail world there are many things
Speaker A:you could have said to shock me peter um but that is not one of them yeah um well I did this
Speaker C:deliberately because I was finding that carrying lots of change around in the pocket was just putting holes in my trousers pockets well you remind me of that there was that lone mp for 20
Speaker A:years that um and you know how mps often have their own one issue that they have and they're always raising private member bills and so on and there was that one mp who for decades it was about abolishing the 50p for precisely that reason it was making holes in his pocket uh all I know
Speaker B: to so to carry five pounds in: Speaker A: ust thinking your example pre: Speaker C:sort of point at which you can't reduce the coin any further because the part of the part of the coin part of the the the thing that proves that it's a real coin is its weight and if you go too small then the error in weighing that becomes too too great and you can't therefore verify coins
Speaker B:yeah I mean but wouldn't you intuit yeah I'm sure that's uh that's that's the sort of fundamental limit but wouldn't you wouldn't you expect over time for notes to become more prevalent you know that actually more current more more denominations would be swept up in notes rather than turned into
Speaker C:coins um but actually it's the other way around you know you would make well we well you make more coins of higher value like the two pound coin came out relatively recently um was in reaction to this so you want as your currency is devalued you need you need something that's and then eventually
Speaker B:what the coins at the very bottom get get removed we just scale up to the five p's yeah yeah I'd be
Speaker A:nice to pay something to pay for something with a half penny these days wouldn't that be good don't say no um so you should have you didn't call it hate me you should call it everyone every Englishman knows you call it a hate me uh well look let's this leads us on to and actually I do remember um having shilling coins I remember having um was it called a shilling yes it was yeah I meant when it was a 5p when I was when I was about eight years old so just to explain to
Speaker B: eign listeners um it prior to: Speaker A:yeah um had a beautiful kind of rose design on it if I recall yeah um well look this leads us on nicely I feel there's one question I still want to pick up later which is about Ireland and whether it's different from the rest of the eurozone and using 50 euro notes all the time but um this leads us nicely on to um what ought uh currency divisions be because we've just yeah we're already sort of leading into that so um what is the answer I mean how do we how do
Speaker B:how do we hit Peter's the engineer so I'm kind of looking at him here well aside aside from the
Speaker C:very sort of technical question of what what values do you need to be able to easily add up it makes sense to have tens fives twos and ones as we have with coins and notes uh because you can quickly make any number with those because you can you have this odd number modifier of one and you can then make anything in between or above so it's it's it's uh the the what what breakdown do you want I think it really is a policy decision it's how much do you want uh how much cash do you want in in in your economy to facilitate quick transactions bearing in mind there's going to be an economic cost to the economy in fraudulent activity and tax evasion so it's really it's it's it's a collective choice on on behalf of the policymakers and and their citizens they represent to decide what it is what what what sort of size notes they want to have but it's
Speaker B:I think also there's key features about how how much do things cost I mean that's it you know if most transactions apparently um apparently a quarter of all payments in the UK are for one pound or less and over half of them are for five pounds or less so there's no point getting works up about having you know five pound coins and 20 pound coins and 50 pound coins and 100 pound coins and you know they're just never going to get used and likewise you know that when you're in that order of magnitude you don't you're not going to need things that are huge subdivision you know tiny little subdivisions of those so it has to be presumably optimizing this uh will involve consideration of you know the how empirically what kinds of amounts of money
Speaker A:people are spending okay so look I think this is actually unusually for us that's a fairly simple answer to a question to answer right no no no no because actually this question of what how you
Speaker B:ought to break so ultimately it comes down to saying what's the what's the best way of breaking down an amount of money so that it will be the fewest number of coins needed now now you could say well let's just have a coin for every single denomination right let's have a 48p coin there's a brilliant paper actually I read um brilliant mainly because of its name by Geoffrey Shallick called what this country needs is an 18 cent piece referring to Canada and in which he does some analysis pretty much looking at you know actually what what sorts of denominations you ought to mathematically but interestingly is what's called an NP hard problem it's an example of something called a knapsack problem which is uh where you're trying to sort of fit chunky things into a given size so you've got you know chunks what are the best chunks to have to make that as efficient a process as possible and what that means is there isn't there's only algorithms there's not some perfect solution which we can which we can generate it will depend on the specifics you know of how much you're you know trying to pay and okay fine so this then leads us
Speaker A:back to the question then is is why are the irish using 50 euro notes all the time I recognize that we've looked at you know the amount of money in circulation compared to the amount of cash in circulation compared to as measured by population but given what we've just said about how we divide up um currency why are why in the eurozone or why in ireland are they using 50 euro notes
Speaker B:all the time I don't think anything we've said has given us any insight into that but I in good journalistic fashion I did some research which is I asked my cab driver last night what what tell me about your interaction with 50 pound notes and he said um he does get them he mainly gets them from the west end he says uh you know which is where quite a lot of rich people live in uh he gets you know people people paying in in 50s he said you know he generally takes them straight to the bank but will sometimes spend them on say filling up his petrol tank or something um he said he'd been given a fake one once and but never again and I said I was amazed that people would would counterfeit 50 pound notes because no one trusts them anyway I don't know why you'd why you'd do it um but but I I would I would veer towards the the cultural explanation you know it's almost we've we've found this equilibrium where no one spends 50 pound notes and the fact that someone is trying to spend a 50 pound note is suspicious because of that and as a result no
Speaker A:one spends 50 pound notes whereas so that's not the case in ireland and so is it the case therefore that you've got italians and french and um germans going to ireland going yeah this is totally normal everyone's you know here's my 50 euro notes or do you have italians germans going to ireland going hey what's what's all these 50 euro notes I've never seen one before
Speaker C:well I mean the conspiracy theorist amongst in me sort of suggests that maybe uh your the bank machine detects that it's a foreign credit card or bank card and gives you loads of 50 euros so to mark you out as a tourist somebody who's easily ripped off who doesn't know the language
Speaker A:but presumably it wasn't just yourself who's you were you seeing 50 euro notes sort of flying
Speaker B:around all over the place wasn't just yeah yeah like the lady in front of me in the queue paid a 50 pound note which you know emboldened me further okay well two years ago 50 euro note
Speaker C:was only worth about 30 quid so it's not that different from a 20 is it sure yeah but but the
Speaker B:scale of different I mean it cannot be understated people have never been to the uk who are listening it cannot be understated how different these things are yeah you know nobody uses 50 pound notes nobody everyone uses 20 pound notes all the time you know that scale of difference is not a sort of quantitative one interestingly there is actually in the us there's there's a two dollar bill even millions of americans don't know this right I don't know no uh there's even a there's there's even a song um saying I which goes I lost all my money but a two dollar bill and now I'm on the long journey home um and I think a lot of people hear that and assume that he's he means he's got no money because there's no such thing but there is and I got given one when I was in um San Francisco a couple of years ago uh definitely because I was a tourist uh because because no one spends two dollar bills in the US because people don't believe in them um the other thing say extraordinary the other thing say about the 50
Speaker A:pound note is bright red as well pretty much so uh it's almost like an alarm going here's a 50
Speaker C:pound note so you really do see it listen it's not the biggest note though in in UK uh there is a there's a note called the giant which is a 1 million pound note and there's a 100 million called the titan which are only used for sort of interbank transfers um uh they're a bit like a sort of barra bond kind of thing but it's it is a banknote um so yeah but they yeah you could go and buy one but you'd have to explain what you're going to use it for okay yeah you probably wouldn't
Speaker B:buy one to get a newspaper um okay I I sorry I know I told you this is gonna gonna be an interesting one I found can I just mention a few interesting this is turning into a bit like QI but uh I've has a very interesting uh currency facts uh that apparently there are still there are only only two currencies um national currencies which which have subunits anymore so that's the sort of equivalent of pounds shillings and pence that and they are the the Malagasy uh Ariari which is as we all know equal to five Iran bilankas and and Mauritanian uh which are equal to five coons um but my my faith my favorite one of all is the that did you know that the sovereign military order of Malta which is a continuation of the Knights Hospitaller from Templar days has its own official currency and um uh it's called the Scudo which is subdivided into 12 tari each of 20 grani with six piccioli to the grano uh and apparently this currency is pegged to the euro um so I I thought I thought that was a really interesting currency fact um harry potter we mentioned harry potter has utterly ridiculous um current set of currency denominations in which you have 17 sickles to a galleon and 29 nuts in a sickle now you tell me what if something was you know that's ridiculous something's cost 28 27 nuts your only option is to give them 27 coins uh I mean this is a good example of um you know jk rowling didn't really think this through I think I think you need to write her an
Speaker C: country to issue banknotes in: Speaker B:think I think we should we should do one on blockchain and yeah okay well let's remember
Speaker A:that um look let's round it up there the only thing I just want to sort of tell you a quick story that um that used to really annoy me when I lived in Brazil um so this is back in the day when I used to smoke and let's say I had a five real note it just used to annoy me because without fail I'd go to a gas station and say you know I'd like to buy some cigarettes knowing that the cigarettes cost about four pounds twenty five uh four reals twenty five and they would always look at my note my five year my five real note and go well sorry we can't it was nothing we can do that and it's and I would be are you are you crazy what look what well that's because you're a foreigner
Speaker C:and they know you're desperate for a fag so they're gonna make you round it up yeah and that happens I mean there are the coffee shops in the UK often the change just goes into into the charity box uh by consent or in in in in the US where the one cent is really not worth very much they round
Speaker A:it up to give you sweets don't they sometimes yeah yeah yeah yeah they do that a lot in Brazil actually give you sweets and that really annoys me as well and that actually leads me to one other thing which if ever I'm in a pub or a bar where they hand you your change on a little platter then I'm right off out of there that annoys me as well um because they said because the implication is that you're just leaving that as a tip right no I'm not well actually that comes from a very
Speaker B:old uh scam which is the the wet hand scam uh which is that bar staff if they give you um your change and they've got wet hands which is quite easy to do if you're working behind the bar you don't tend to check your change so so I think putting it on a tray is actually a reaction to
Speaker C:it's not well I take your point I think it's also that you know in in Europe uh in in France, Germany, Italy and Spain you don't it's not customary to touch people you don't know so um you you the tray the change goes onto a tray for you to check but also to take for yourself so you pick up yourself you don't you don't hand people a change and then for risk the risk touching
Speaker A:each other see this is now I know where I've been going wrong in these countries when I've been touching people they've been yeah um okay let's wind it up there um thank you very much chaps thank you as always um yeah I feel I've learned a lot and that we've we've moved forward the discussion the debate on and research on currency denominations I feel we may have moved it backwards but uh yeah we've gone back to pre-decimal um times um okay so thank you chaps and uh thank you as always to listening to the Cognitive Engineering Podcast I'm Fraser McGruer we've been here with Peter Coghill and Nick Hare of Aleph Insights thank you as always for listening and until next time bye
