Comment: ‘The 1 rupee coin is worth more than 1 rupee’

Forbes.com contributor proposes the origins of a popular urban myth.

A rumour has taken hold that the old 1 rupee coin is worth substantially more than the 1 rupee face value due to its metal content.  What amuses me about the story is that it is, in fact, true that the coins are worth higher than face value: but for very different reasons than those that are floating around. Indeed, I can see a plausible explanation for how the whole rumour started.

How much is a one rupee coin worth? Up to 2,500 rupees if you believe the rumours sweeping Pakistan that the humble coin had inadvertently been made with gold instead of the usual tiny percentage of copper.

Looking around the web you can see various explanations of the metals contents. Some say it is gold, as above; others have come up with the extremely inventive story that uranium was used as a way to either get it into Iran or to stop it doing so.

As far as anyone can tell, there is no truth at all to either of these stories. However, it does seem to be true that the old 1 rupee coin is worth more than its face value. This is not because of any gold or uranium content, but rather because of its copper content.

Exactly what that copper content is, is debatable: various sites give brass or bronze as the alloy, with varying copper content. But based on the balance of what I’ve seen (and reasonable background knowledge of typical coin-making alloys) we have a copper content of 75% and a coin weight of 4 grammes.

The LME price of copper is $8,800 a ton today, making 1 gramme of copper worth 0.88 US cents. The three grammes of copper in the 1 rupee coin (we are talking about the older style: Jinnah on one side, Badshahi Masjid on the other, a brown colour – not the newer silvery looking coin) therefore has a refined value of 2.64 US cents. However, the Pakistani Rupee is currently some 94 to the US dollar, meaning the face value of the coin is about 1 US cent.

Now obviously, a copper scrap refiner does not pay the full value of the copper contained within scrap. He needs to make a margin to run his refinery after all. But a 20-30% discount on the copper value is reasonable enough; thus making, at the refinery gate, a 1 rupee coin worth perhaps 2 cents or two rupees.

We do face a few further problems in trying to capture this value though. No refiner is going to pay out on 4 grammes of material. One would need to accumulate tonnes in order to be able to gain anything like real metals value. But then many places do indeed have laws against the smelting down of the coinage. Thus capitalising on the value would require export: and there the numbers become rather difficult. For pretty much the minimum international order of copper containing scrap is the short container, or 20 tons of material. This would be 5 million 1 rupee coins. A reasonably difficult amount to collect, I would have thought.

But if it could be collected then it wouldn’t be all that difficult to sell the material for perhaps twice the face value of the coinage. Rs5 million becomes Rs10 million.

And I have a feeling that this might be the way that this rumour about higher Rupee values might have come from. I have absolutely no proof at all, of course, but the story is consistent with the economics behind what is going on.

To be honest, the effort of collecting 5 million will be more than any profit that could be made. Unless you’re actually a bank that is, handling millions in change each day. Or even the National Bank: which is where almost all of those coins that the scrap merchants see come from. The logistics of trying to collect 5 million items without having such a network would almost certainly eat away all potential profit.

Published in The Express Tribune, June 15^th, 2012.