Banks and bureaux de change are eager to exchange foreign banknotes. But why don’t they exchange foreign coins? Here are five reasons why:
1. Coins are less profitable
Bureaux de change make money from the exchange rate spread between the buy rate and the sell rate of foreign currencies. By selling currency at a higher price than the original purchase price, profit is generated.
When people buy travel money at a bureau de change, they expect to receive an envelope with banknotes, not a bag of coins. If a bureau accepted foreign coins for exchange, it would struggle to sell on these foreign coins to other customers, as the demand is for notes not coins when people are buying their currency.
This means that profit is only generated on the buy side, not on the sell side. Additionally, the profit margin on the buy side applies to a smaller turnover, given that coins have a lower face value than banknotes.
Therefore, dealing in foreign coins is less profitable than dealing in foreign banknotes.
2. Coins require more work
Not only are coins less profitable, they also require more work than banknotes. Each bureau de change needs to maintain an inventory of its stock in foreign currency. At the end of each working day, the whole stock needs to be counted.
Counting coins involves more work than counting banknotes: Sorting coins per denomination, and counting the amount of pieces for each denomination is very labour intensive, especially when it has to be repeated daily, across multiple currencies.
3. Coins are heavy and bulky
Most bureaux de change are located in high footfall areas, such as airports and shopping streets, where rents are very expensive, and often calculated per square meter. Therefore, to be cost efficient, bureaux de change are mostly very compact.
Coins are bulky. Whilst £10,000 worth of banknotes can be stored in a drawer, £10,000 worth of coins needs a crate for storage. In most bureaux de change, there simply isn’t enough space to store crates of coins.
Coins are also heavy. Logistics can be challenging: Imagine having to park a money transport truck in a busy shopping street and carry heavy crates to and from the bureau de change.
4. Coins require extra, ongoing training
The variety of coins across currencies is immense. If a bureau de change wants to accept coins for exchange, it must provide extra, ongoing training to its cashiers. Each cashier must know which coins are valid and which coins are worthless. Cashiers must know about coin security features and how to spot fake coins.
The training needs to be ongoing, to ensure that cashiers are aware of the latest changes, for example the recent introduction of a new set of Swedish Krona coins.
5. Coins require specialist equipment
Handling coins requires specialist equipment. For a bureau de change to accept coins, each of its branches needs a variety of coin counters, one per currency.
In addition, to handle large amounts of coins, a central processing centre needs to be equipped with coin sorters and bagging or wrapping machines. Transporting coins requires a money transport truck and a forklift. Storage of coins requires large safes and heavy duty storage bays.
Most bureaux de change don’t exchange coins, but some do.
Dealing in foreign coins is less profitable, requires more equipment, and involves more work than dealing in foreign banknotes. As a result, most bureaux de change don’t exchange coins.
However, some do. The lack of competition has created an opportunity for niche players who specialise in the exchange of foreign coins. One example is Leftover Currency, who accept foreign coins as well as out-of-circulation banknotes for most major currencies, including pre-Euro notes.
How can these specialist companies exchange coins and still make a profit? The few bureaux who do accept foreign coins do so at a different rate than the rate for banknotes. A customer will receive less money for selling €100 in coins than for €100 in banknotes. The higher spread allows the bureau to cover the greater costs associated with the exchange of foreign coins.
Exchanging foreign coins is likely to remain a niche in the foreign exchange market. The higher spread helps towards the profitability, but the extra investment in terms of logistics, training and storage, linked to a smaller turnover figure, mean that big players in the FX market will continue to focus on banknotes rather than coins.