The true potential for value growth lies in the collectors' market, where a thriving trade in bills and coins has existed since at least the Renaissance era.Jitalia17/Getty Images
When did you last pay for something with cash? If you’re like a rising number of people, you’re far more likely to tap a card or scan your phone than count coins or break out a bill.
In a world where physical currency is becoming the exception, not the rule, could certain kinds of cash be worth more than their face value? Experts say: it depends.
Coins and precious metals
There’s an argument to be made for the intrinsic value of certain coins when they’re made of metals that might be worth more than the denominations they represent.
“Coins that are made of gold or silver can attract demand and retain value,” says Philip McHugh, trading floor manager at international payment platform Currencies Direct. “That can be a hedge against inflation, as fiat currencies erode with value over time whereas precious metals retain and grow in value.”
Mr. McHugh points to American dimes, quarters, half-dollars and dollars that prior to 1964 were 90-per-cent silver. With time, and the rising price of the metal, those older coins now hold value purely for their precious metal content.
Currency collectors’ market
The real potential for value growth is in the collectors’ market, where there’s already a robust trade in bills and coins that’s been happening since at least the Renaissance period. Mr. McHugh points to the former British one-pound note, which was discontinued in 1984 in favour of the current coin.
“The withdrawal of the British one-pound note meant the currency became in demand, with collectors betting that the discontinued note would become a rare item in the future and increase in value,” he says.
When it comes to the appreciation of retired coins and bills, rarity – not obsolescence – is key.
“Like anything else, it all comes down to supply and demand,” says David Bergeron, a curator at the Bank of Canada Museum. “For centuries, collectors have identified pieces that are more attractive, more collectible simply because there are fewer out there, or there are some anomalies in the way the object was made, or simply because they’re such beautiful pieces.”
Condition is a major determinant of value, too.
Historical context and rarity
While we have yet to face the disappearance of physical currency, history is filled with examples of certain forms of payment being discontinued and subsequently coveted by collectors.
For example, in Canada, more than 100 different banks are believed to have issued currency before the Bank of Canada got the exclusive right to print bank notes in 1935. These old notes from across banks were often destroyed, but the rare survivors – many of which are displayed in the Bank of Canada’s museum – are now considered collectibles, Mr. Bergeron says.
“They were the last tangible existence of many of these institutions,” he explains. “If you happen to be able to come across a note from a bank that’s unheard of, they can garner quite a lot of interest, and all of a sudden they get premiums because collectors are excited.”
On a global scale, the most-coveted note tends to fluctuate, says Zeke Wischer, chief numismatic cataloguer at Heritage Auctions. “They appear at auction so infrequently due to their sheer rarity that it is hard to say one is definitely the top note,” he adds, pointing to an ultra-rare bill – the 1890 $1,000 Small Seal Grand “Watermelon” note – as an example of what a premier collectible looks like.
Assessing value
Rarity, condition, historical importance, provenance and overall popularity among collectors are what make a singular bill or coin worth more than another.
For instance, one of the most rare coins known to collectors – the 1933 King Farouk double eagle – sold for $25.6-million since the rest of the coins were destroyed and it’s the only one collectors can legally own.
In a world that predominantly uses digital payments and currencies, Mr. Wischer says he believes today’s coins and bills will have value to collectors, but they’ll need to be patient. “The collector value of current-day coinage will take a very long time to develop, and it will lag far behind that of scarcer earlier coinage, which is already valuable to collectors.”
That means holding on to your coins and bills would not be a sound investment strategy, Mr. McHugh says. “I would see coin investing as more of a fun hobby that can be profitable than a typical investment strategy. The holding period would also be significant, and you would not gain the benefit of flexibility, interest or the benefit of compounding that you could through a typical financial investment.”