The Problem of Small Change in Early Argentina

M any economies, during the early stages of monetary development, experienced what appear to be sporadic relative shortfalls of small denomination means of payment. These episodes have been broadly documented in the literature under the label of “shortages of small change.” Sargent and Velde (2002), for example, review in great detail the evidence for Europe. Hanson (1979) provides an interesting survey of the evidence for the British colonies in North America. The purpose of this paper is to present evidence of similar events occurring in the early monetary history of Argentina. The provision of small change in modern economies has become almost a nonissue.1 In fiat money systems, the monetary authority controls the aggregate supply of monetary balances (of all denominations) and stands ready to exchange at par any denomination for an equivalent amount of any other denomination. It is, then, demand that determines the relative amounts of the different denominations that circulate in the economy. There are, of course, costs of providing the demanded amounts. Low-denomination coins tend to be relatively more costly to produce (at least, per unit of value). Yet, in general, governments in modern societies have considered these costs worthwhile.