What is mutilated currency redemption?1:20
A look at the purpose and processes of mutilated currency redemption.
When is $1 not worth $1? Australian government accused of ‘legalised theft’ over damaged currency crackdown
HOW much is a dollar worth?
If it falls between the car seat cushions, or it gets lost in the washing machine, it’s worth big bucks to Ronnie Shahar.
Every year, countries all over the world ship millions of tonnes of scrap metal to processing plants in China, India and South-East Asia, the remains of old cars, vehicles, washing machines and vending machines.
The scrap metal is laden with old coins in every conceivable currency — chipped, bent, burnt, fused or otherwise severely mutilated — which have to be extracted by hand.
The problem is, no bank will take them. It’s currency only a mother could love.
That’s where Mr Shahar comes in. For more than 20 years, the 47-year-old Australian-born entrepreneur has been travelling across Asia buying damaged coins and banknotes in bulk, which he then ships back to the mint or central bank where they were born. The coins or notes are then redeemed for a lump sum, usually the majority of their face value.
It all started in 1989, when as a 19-year-old student he was travelling through Thailand. During a tour of a temple, he saw tourists flipping coins into a wishing well.
The temple caretaker took him into a back room where he revealed bags of coins retrieved from the wishing well, sorted by country. “They said, we can’t use these coins, the bank won’t take them. Where are you travelling to next?”
When Mr Shahar said he was headed to the UK, they struck up a deal: if he took the coins with him to London and brought the changed money on his way back, they would pay for his airfare, worth about £900.
“I took the coins, about six or seven thousand one-pound coins, went to London, changed them at the bank,” he said. “On my way back about a month later I paid them. I thought, this was pretty good. I can fund my travels like this.”
Mr Shahar, who now lives in Israel with his wife and three children, spends about 80 per cent of his time travelling around Asia.
He buys damaged coins and banknotes from temples, charities, second-hand stores, scrap metal recyclers and currency exchanges in more than 25 countries, typically paying 20 to 30 per cent of face value for coins and 90 per cent for banknotes.
He then repatriates the damaged currency in bulk to more than 70 countries around the world. “In Indonesia, the Philippines, Thailand, Malaysia, Singapore, Hong Kong, all these countries people keep a lot of Australian currency as a means of savings,” he said.
“They don’t trust their currencies, especially after the Asian financial crisis. But when they keep it, it gets damaged. They claim polymer notes are long-lasting, but when they’re kept in hot, humid conditions they shrivel.”
After being redeemed, mutilated coins are shipped from around the world to places like South Korea, where Seoul-based Poongsan Corp., the world’s largest supplier of blank coins, melts them down into a coinage strip from which blanks are punched before being shipped back to local mints to be “topped and tailed”. Banknotes are similarly recycled.
“It’s a niche market,” Mr Shahar admits. But one that has proved extremely lucrative. In the US alone, the Mint has paid out more than $US100 million since 2009 under its Mutilated Coin Redemption Program, until it was shut down in 2015 amid concerns some of Mr Shahar’s competitors were sneaking fakes through.
“I’ve made money and I’ve lost money,” he said. “Governments over the last few years are becoming dishonest, they don’t want to pay. America is one example. What they put me through is unbelievable.”
Mr Shahar and his Portland-based partner last year filed a lawsuit against the US government after US authorities seized an estimated $US664,000 worth of coins as part of the shutdown. Mr Shahar expects to reach a settlement in that case shortly — and now has his sights set on the Australian government.
That’s because according to Australian authorities, a dollar isn’t worth a dollar — if your name is Ronnie Shahar, it’s worth about four cents. “They’ve declared war on me,” he said.
In Australia, the Mint and the Reserve Bank are responsible for redeeming mutilated coins and banknotes, respectively. After two decades and tens of millions of dollars redeemed, Mr Shahar says both organisations have stopped paying him for his business.
It’s not clear exactly what prompted the change. According to the Mint, the new Mutilated Coin Policy was put in place in 2004 “to assist with managing the risk to the integrity of our currency from the importation of large volumes of mutilated coins”.
In Treasury’s 2004 annual report, it notes that in 2003-04, the Mint and the Australian Federal Police “undertook an investigation of mutilated coins that were returned to the Mint for reimbursement”.
“No conclusions were made as to whether the coins were counterfeit but processes regarding return of mutilated coin were reviewed,” the report said. Under the revised policy, the Mint began paying scrap metal value for mutilated coins, effectively killing off the coin importation business overnight.
“Years ago I shipped coins into Australia in crates,” said Mr Shahar. “Australia was the first country to block it, because Treasury didn’t want to pay, so they were looking for a way out. It’s a program with no participants, because it costs more to ship the coins than they’re worth.”
Then in 2014, the Reserve Bank followed suit. Under the RBA’s Damaged Banknotes Facility, financial institutions can send in damaged notes that are badly damaged, contaminated or less than 80 per cent complete for assessment.
But the policy change, instituted without warning, changed the claim requirements to specify that the facility was “only offered to members of the public who have unwittingly come into possession of damaged banknotes or those whose banknotes are accidentally damaged, with the aim of ensuring that they do not face financial hardship”.
In other words, anyone carrying on the importation of damaged banknotes as a commercial enterprise — a vanishingly small group of which Mr Shahar is one of the only members — was arbitrarily frozen out.
Under the new policy, if a claim is rejected, the banknotes are destroyed. Mr Shahar says the RBA has “stolen” something like $100 million from him in this way.
“The policy is one of legalised theft as they can deny a claim and keep the money,” he said. “There is no law against the importation of damaged currency. It’s only a policy, it’s not a law. By law, all Australian currency is legal tender. There is no devaluation, [even for] a coin which has been put through a metal processing plant accidentally.”
Under Australian law, it is a crime to “intentionally deface, disfigure, mutilate or destroy any coin or paper money that is lawfully current in Australia”. It is also a crime to “sell or offer to sell a coin or paper money that is lawfully current in Australia and that has been defaced, disfigured or mutilated, knowing it to have been defaced, disfigured or mutilated”.
“The Reserve Bank will, therefore, not complete the processing of claims where either the cause of the damage or the source of the damaged banknotes is not explained by the claimant to the reasonable satisfaction of the Reserve Bank,” the RBA’s policy says.
“Where the Reserve Bank believes an offence may have been committed in relation to the relevant banknotes or their source, the matter will be referred to the police.”
Mr Shahar scoffs at suggestions of money laundering or counterfeiting. “They want to know the source of the money,” he said. “I said to them, you’re playing games. Nobody in their right mind would launder damaged banknotes and bring attention to themselves.”
Ancient coin treasure unearthed0:27
Builder and amateur treasure hunter Laurence Egerton has uncovered 20,000 Roman coins from the 4th century in England. Courtesy Laurence Egerton
Australia, along with Canada, the US and Sweden are among the countries cracking down on Mr Shahar’s business. But he says New Zealand has no issue paying for its own legal tender. Even third-world countries “have no issue” redeeming their own currency.
He claims tens of millions of dollars in damaged Australian notes have accumulated in Asia over the past two years as nobody is willing to send their money back for fear of it being confiscated. “People would like to think the central bank would be an honest institution, but it is definitely not,” he said.
Right now, sitting at a note printing facility in Craigieburn, Victoria, is about half a million dollars worth of damaged banknotes that the RBA has agreed to hand back to Mr Shahar after rejecting his claim in 2015.
But Mr Shahar has refused to sign the release form. “It’s like blackmail,” he said. “They’re holding my money unless I agree to all their terms and waive my rights to legal remedies.”
Mr Shahar acknowledges his problem is a very technical, very specific one. But he insists it has far-reaching implications for everyday Australians. He says it goes to the fundamental issue of trust — the underpinning of all currencies.
As far as Mr Shahar is concerned, legal tender is legal tender, and the Australian government has started down a slippery slope.
“For 100 years the RBA has always redeemed its money without question,” he said. “It’s a matter of national obligation. You can’t demonetise currency — even Australian pound notes issued in the ‘40s, ‘50s and ‘60s still have to be redeemed.
“If banknotes and coins are no longer redeemed, what next? Perhaps a government bond that is damaged will no longer be valid? If my original property title is damaged and sent for a replacement, then perhaps the government will claim the property also belongs to them.”
In a statement, a spokesman for the RBA said the Damaged Banknotes Policy was changed on 23 January 2014 because the previous policy “said very little about the rationale for the Bank’s Damaged Banknotes Facility, beyond aiming to have only good quality banknotes in circulation”.
“In practice, this meant that the Reserve Bank processed damaged banknote claims subject to verification that banknotes were not deliberately damaged and the requirements of the Reserve Bank’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Program had been met,” the spokesman said.
“The revised Policy makes clear that the Damaged Banknotes Facility is only offered to members of the public who have unwittingly come into possession of damaged banknotes or those whose banknotes are accidentally damaged, with the aim of ensuring that they do not face financial hardship.
“The aim is to protect the integrity of the Facility and the reputation of the Reserve Bank by giving it the right to refuse to process claims that it assesses are inconsistent with these principles. In particular, the new Policy makes clear that the Reserve Bank will not process claims where there is doubt about the nature of the claimant or how the damaged banknotes came into the possession of the claimant.
“The Policy also emphasises that the Reserve Bank will not process claims where either the cause of the damage or the source of the damaged banknotes is not explained by the claimant to the reasonable satisfaction of the Bank, and that the Reserve Bank will refer a claim to the police if it believes an offence may have been committed.”
He said the RBA processed more than 18,000 claims and made $7.5 million in payments in the 2015-16 financial year.
The RBA did not respond to requests for a dollar figure on the amount of claims rejected since the revised policy came into effect. The RBA has also been asked to clarify whether fresh notes are printed when a claim is rejected, but the damaged notes are deemed to be genuine currency.
The Australian Mint has been contacted for comment.
Originally published as How much is $1 actually worth?
