Mind Over Money. Claudia Hammond
the Dollar Coin Alliance, backed by car wash companies, vending machine firms and snack food sellers, is still campaigning for dollar bills to be replaced by coins.12 Not surprisingly, mining and metals companies support the change too. The Alliance argues that a single coin can last 35 years, 17 times as long as a dollar bill; that coins are 100 per cent recyclable; and that when people complain about the weight of coins in their pockets, they should bear in mind that four quarters weigh three times as much as a single dollar coin. Taking all of this into account, they say, the US government could save $150 million a year if coins replaced bills.13
The Federal Reserve Board argues these savings are exaggerated; that the growth of debit and credit card use renders coins less relevant today than in the 1980s, when many other countries made the transition; that their notes can now last six years due to their superior production; and that coins cost more to produce and are easier to forge.14
So it seems there are strong economic and practical arguments on both sides, but that’s not what interests me. Rather I’m struck by the strength of feeling the debate generates, which is passionate and heartfelt. It’s not just a case of finding the most sensible and sustainable course of action. There are emotional attachments to consider, particularly with regard to the much-loved dollar bill. And for the moment that attachment seems to be winning out. In a Reuters poll, the complete replacement of bills with coins was not at all popular, with three-quarters of people saying they preferred their greenbacks.15
The world’s largest-ever currency changeover, in 2002, saw 12 countries in the EU give up their individual currencies and replace them with the euro. As the change took place the European Central Bank used the slogan ‘the EURO. OUR money’, stressing pan-European solidarity, and after the introduction of the new currency the majority of people polled in the affected countries did say they felt more European as a result.16
Not everyone was happy of course. On the steps of the Paris Opera House, the leader of the French far-right National Front Party, Jean-Marie Le Pen, called for a contemporary Joan of Arc to drive out the Eurocrats. ‘Long live the franc, long live France, long live the French!’ he cried. 17
As a result of the currency change, 9 billion notes and 107 billion coins were withdrawn. The European Central Bank introduced 15 billion new notes and 51 billion new coins.18
Public information campaigns across Europe suggested simple conversion strategies to help people adjust to the new currency. Kits containing one of each of the new coins were bought by 150 million members of the public, to familiarise themselves with the coinage before it could be spent. Products were labelled with dual prices at the start of the three-year transition period. And, in a sign of the times, diskettes were handed out to householders containing information on the changeover.19
After that, it all happened remarkably quickly. Within two weeks of 1 January 2002, euros made up 95 per cent of the currency in circulation. In that first week of the New Year, withdrawals from ATMs were far higher than usual. But curiously robberies from security vans dropped right down. So thieves apart, most Europeans quickly got used to having euros in their pockets. Yet by the end of the first month, only 28 per cent of people said they thought in euros.20
Despite the extensive publicity campaigns to familiarise everyone in the Eurozone with their new currency, people still needed to do mental conversions between the old and new money.
Ireland’s reaction to the euro changeover was among the most positive. 77 per cent of people said they were very or quite happy with the idea compared with a European average of 53 per cent.21 Some Irish people did remark that it was a pity to lose the attractive designs on the Irish banknotes, but during in-depth interviews with psychologists, others liked the new notes. One said it was like being ‘a child at Christmas’, another that it was like having Monopoly money.
This reaction partly stemmed from the fact that of all the countries joining the single currency only Ireland had a previous currency with a unit value higher than a euro. An Irish pound was worth 1.28 euros. So people marvelled at these new high numbers on their salary slips. For a fleeting moment, they felt richer. Until, that is, they went shopping, where everything looked more expensive. Some people suspected that shopkeepers were taking the opportunity to rip them off, although in fact there was little evidence to back up this suspicion. The real problem was one most of us are familiar with if we travel overseas: it’s just difficult to calculate whether prices in an unfamiliar currency are fair.
One technique that Irish people used was to learn a few reference prices along the spectrum and then guess prices in between. Another strategy – you may have used it yourself – is to learn the price of one thing, let’s say a pizza, and then apply it to anything else you purchase. So, while it may be hard to calculate quickly whether the scarf you want to buy is good value just by converting x currency to y currency, you find you can compute the sums if you think to yourself, how many pizzas would that scarf set me back?
While the Irish, along with other people in the Eurozone, struggled a bit to adapt, the new coins and notes became a little more familiar every day. However the old currency still holds a nostalgic draw for some Eurozone citizens. In 2014 sales of gold and silver reproductions of the old Italian lira coins and commemorative books on the currency amounted to more than 25 million euros.22
In countries that hadn’t adopted the euro, where of course there were no public information campaigns, dealing with the currency has not been as easy. The Swedes didn’t have to use the euro on a daily basis, but the fact that many of their close European neighbours had joined the single currency meant some familiarity with the new money was important. How then would they cope with it?
The first experiment carried out by a group of researchers as part of a study in 2002 was a simple one. They asked people in the Swedish city of Gothenburg to look at a list of prices of magazines, bus fares and monthly rent expressed either in the local Swedish crown or in the euro. Then people were asked to rate each price on a five-point scale ranging from very cheap to very expensive. Now the cost of living in Sweden does tend to be higher than in most European countries. But it was not that which led the Swedish respondents given the amounts expressed in euros to say that prices were cheaper. No, they thought euro prices were lower for one simple reason: the numbers on euro notes were smaller than the numbers on Swedish crowns.23 People were being fooled by the fact that a two-euro bus ticket sounds cheaper than a five-crown bus ticket, just because two is a smaller number than five. People were just guessing, rather than bothering to do the calculations, but would they take sums more seriously if they were asked to ponder the possibility of actually moving to a country? Or would they still be mesmerised by the numbers on the notes?
Next time round, the Gothenburg residents were asked to consider the following scenario. They had been offered a good job in another EU country known to have friendly people and a pleasant climate. It was surely an attractive prospect. But of course, before moving, people would want to consider the cost of living.
The prices of various items including a cinema ticket, a haircut, a piece of cheese, a vacuum cleaner and a queen-sized bed (yes, a rather random selection of objects) were given to the participants in various made-up currencies. Did they think these items were more expensive in these currencies than the prices they were used to in Sweden or not? With a bit of effort to calculate exchange rates, people could have worked it out for real. But instead they tended to assume that if the price was expressed in a high-number currency – something like the old Italian lira – then the item was more expensive in that country than at home.
This effect has been dubbed the ‘euro illusion’.24 (It’s a variant on the broader ‘money illusion’, a phenomenon first noticed by the economist Irving Fisher back in 1928.) What happens is that we can’t help but focus on the actual numbers printed on banknotes and this skews our attention away from real values. So why do we fall into this trap?
For a start, as we’ve found, thinking this way is easier than doing complex calculations. But there’s also the issue of what’s known as psychological salience. This can take various forms. It might be that something stands out from the crowd, such