5.13.2009

Denomination Effect is Universal: Researchers
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Marketing researchers in the U.S. may have a solution to the consumer slowdown. Increased spending, but utilizing the "denomination effect" - the propensity to spend greater amounts of lower valued currency or coinage (cognitively regarded as 'small change') when a subject is offered a stimulus.

It turns that across cultures, people spend a greater amount overall when they don't have to "break" a large denomination instrument that they are more likely to save through a mental impulse to hoard items of perceived 'higher value' - even if the differentiation is illusory.

In the U.S., a $2 coin is recommended as salutary. If pursued, such a strategy would lead almost certainly to an acceleration of inflation - as the coin could not be much larger than a quarter.

Even if offered in a "valuable" color such as gold, the public has voted with its feet in the past by driving new denominations out of circulation almost immediately. The latest dollar coin experiment, featuring a brassy planchet, is almost never encountered unless you buy stamps at a USPS facility or a public transit ticket with a bill and receive the unpopular coin as change.

Eliminating small bills entirely might also stimulate spending - instead offering $1, $5, and $10 coins. However, citizens might then palpably feel the decline in purchasing power that has been occurring. Policy makers might be tempted to institute wage and price controls.

Examples: 1971 Intervention - U.S.

Edict of Wage and Price Controls (Historica1)

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