Police have discovered that an illegal mint in China is now able to counterfeit, or forge, both the €2 euro coin and the £2 coin. While this isn't actually desirable it's also not a great problem that we have to worry about very much. Sure, we're not cool with the idea that the criminals have found a new way to make money and sure, we ought to go after them and prosecute any we can find. But it's not an existential threat to either currency, either the pound or the euro and the costs of changing the coinage to stay one step ahead of the forgers would be so vast as to make it an entirely ludicrous public policy response. It's also true to say that everyone at all of the national mints knew this moment would arrive and also that not a great deal, other than police investigations, would ever be done about it.
Here's the story:
China-based criminals have mastered the ability to manufacture almost perfect bi-metallic coins, stoking fears the £2 coin is vulnerable to a new wave of forgeries.
While the £1 coin remains heavily faked, the £2 has remained almost untouched because of the difficulty criminals have connecting the inner and outer pieces of the coin together.
But a shipment of fake euro coins intercepted in Naples, Italy, three months ago, has revealed forgers are now producing bi-metallic coins in massive quantities.
The seizure - the largest of its kind in the history of the Euro - is likely to cause concern among British investigators given its ramifications for the £2 coin.
As above, this isn't actually desirable. On the grounds that we really don;t like people debasing the currency in this manner. But it's also not very important.
Just as an aside, some numbers which show us why they are trying to mint €2 euro coins, not 2 cent coins:
The average cost of producing each coin denomination is as follows:
2c 2.07c
20c 6.76c
5c 3.01c
10c 5.16c
50c 8.27c
1 Euro 9.75c
2 Euro 14.25c
You don't mint the copper (actually, steel with copper coating) coinage because that's a great way to lose money. And it does look like there's a great profit margin on those €2 euro coins. But once distribution costs are taken into account then it won't be all that great. They've got to be smuggled, and you can't exactly wander into a bank with a million of them and convert that into bank money. They have to be physically distributed around and about. Even with forged bank notes (which have very much higher margins) there's still that distribution cost. I was working in the East End of London as a student decades ago when someone flooded the market with fake notes (these were the forgeries that led to the addition of interleaved silver strips to notes). The standard distribution method was that young lads would buy £20 notes off the forgers' distributors for perhaps £10, then off they'd go down to the West End (they did not try this in East End pubs), buy two half pints with that £20, collect the change and then off to another pub to repeat.
Distribution costs are high because this is all, you know, illegal.
But forging of the coinage in this manner, while not desirable, is nowhere near as important as people forging notes. For notes are used as a store of value, which a forged one isn't. But coins are really used as a token of exchange. And then history of money shows us that what is used as a token of exchange really doesn't matter all that much. Various societies have used cowrie shells, even rocks (or "stones" as they were called on Yap). As long as people will accept the token what it is doesn't matter very much.
So, having forged coinage in the system is not a problem in the same manner that someone having their life savings of tens of thousands of euros in forged notes might be.
The other point would be that those forgers are stealing (yes, this is the correct word) the seignorage rights that the national mints get from minting the legitimate coins. As above, those legal mints make a nice profit on turning 14 cents worth of metal and effort into €2. And they've not got large distribution costs either. But even so it's not a large problem. Here's the numbers for such coins in circulation. A little old but still a reasonable guide:
Denomination Circulation (pieces) Value (in euros)
2 euros 3,586,000,000 7,171,000,000
Sure, 7 billion euros is a lot of money. But compared to total eurozone money supply (M1) of just under 6 trillion euros this is just a rounding error. Only just over 0.1 % of total money supply.
So, we're slightly worried about the criminals getting away with it, a bit peeved about losing some of that seignorage profit and, as long as the tokens keep circulating not really worried about anything else. Which leads us on to what we might want to do about it as a matter of public policy. Which is, over and above the usual police efforts to find and jail the forgers, not a lot really. Because to beat these new forgers we'd have to change the weight and design of that two euro coin. And that in turn means adjusting each and every machine that accepts coins in every country across the eurozone. The costs of which, up in the hundreds of millions to possibly even billions (I've seen one estimate that the cost to change all machines in the UK alone is around £100 million) would be vastly larger than any damage that is happening.
In fact, the better the forgeries are then the more likely they are to keep circulating as tokens and the less we actually care about it.
