The Creative Scrapping of a Currency: Trading a Good Shave for a Rupee

Over on Sourcing Innovation, Michael Lamoureux picked up on a fascinating tale about what happens when currency becomes worth more melted down than kept in circulation. The setting of his tale is India. According to a source Michael quotes, "it seems that their rupee, worth about 2.5 cents in North America, is actually worth about 15 cents to your average resident if they melt it down and make razor blades. It's as illegal there as it is here, but when your currency is worth at least 600% more as scrap metal, and at least 25% of your population is below the poverty line, it becomes a bigger problem than copper salvage in China. The coin shortage is so bad in some places that some tea gardens have had to resort to using card-board coin slips internally."

While I got a chuckle out of this story, it does raise the important point of what an unchecked outcome can be from the continuous march upward for commodity prices -- especially in the metals arena. The challenge here for manufacturers has been dealing with deflationary pricing pressure for many products while having to manage rising commodity input costs. I'm guessing that something will have to give sooner or later and that unless global demand begins to slacken or more mining capacity comes online, we'll begin to see the specter of unshaved inflation rear its ugly head sooner or later in the consumer markets. And this time, Alan the great will not be around to fight it, unless he comes out of retirement.

Jason Busch

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