The 10 rupee coin seems to be out of favour with the general public. It is getting increasingly difficult to use it as a means of payments. Vendors and customers are refusing to accept it. The Business Line reports: “From roadside vendors to even beggars, people have started saying a polite ‘no’ to the Rs 10 coin”. The problem is that many people believe that the coin is no longer legal tender. The RBI has issued multiple circulars and notifications urging people to accept the coin and reaffirmed the legality of the coin. Even banks have begun to refuse the coin as they have no space to store them, reports The Hindu.
Fiat money works on trust. Trust in this case takes two forms – trust in the government that has issued the currency and trust that the others in the system will accept the currency as a payment method. With the 10 rupee coin, both forms of trust are rather low. Social media and Whatsapp have had its role to play in spreading rumours about the coin. The RBI even tackled this in one of its notifications:
It has been reported that some less-informed or uninformed persons who suspect the genuineness of such coins are creating doubts in the minds of ordinary people including traders, shop-keepers, etc., impeding the circulation of these coins in certain pockets of the country causing avoidable confusion.
The Reserve Bank has advised members of the public not to give credence to such ill-informed notions and ignore them and continue to accept these coins as legal tender in all their transactions without any hesitation.
Payment systems and currencies have huge network effects. It gains value with more number of people using it. A currency in circulation gains acceptability based on its intrinsic value and the expectation that a large number of people will accept it as a form of payment. There are known instances where cigarettes have been used as currency in prisons because everyone else agreed on its value. In today’s fiat money system, the currency has no intrinsic value; only a government mandate declaring it as legal tender. The currency gains value because everyone else uses it.
However, in the case of the Rs 10 coin, no amount of government (RBI) assurances and orders has managed to infuse trust. Wonder if this is another side effect of demonetisation?