How much would you pay for a bundle of 100 1-renminbi bills?
Is the answer Rmb109?
Anne Stevenson-Yang of J Capital Research wrote about several odd things that she’s noticed in recent days; this was the one that caught our eye:
In a big electronics hypermarket in Shanghai, next to the gaming cards and phone cards, they sell a new novelty product: cash. You pay 9% more than the face value of the ordinary bills you buy. The popular product is a stack of 100 1-RMB bills for 109 RMB. They are clean bills from the bank, and the serial numbers line up, but that is pretty low value. I asked a vendor why anyone would pay 9% more for cash. “Because of inflation: money isn’t worth anything.” But, you should sell at a discount, I said. “No, in a couple of years these may be worth a lot more.” I didn’t get it.
We don’t get it, either. Stevenson-Yang posits that it might be due to an excess of cash.
Perhaps it’s a collecting craze, like walnuts?
Or, maybe, the cost of cash? As Frances Coppola wrote when exploring the problem of cash a few days ago:
Physical cash is a free good: people do not expect to have to pay to use it, though holding it as an investment carries both cost (vaulting charges, inflation) and risk (theft, fire). And yet it could be argued that retaining physical cash as a non-interest bearing form of money when nominal interest rates on all other forms are negative is a subsidy to people who prefer cash.
This doesn’t really apply to China, however, which is nearing the zero bound and cash deposits there already have a cost, because interest rates on deposits are generally below the rate of inflation. Which is why so many people are keen to speculate on property, strange investment products, and now, perhaps, on pristine bank notes?
Negative has such unfairly negative connotations – FT Alphaville