Cover Story: Making money from old money

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 27, 2017 - April 02, 2017.

The longer you keep a currency, the more it appreciates, especially if it is in mint condition. - Tan

These currencies are just like blue-chip stocks — steady and consistent. Of course, to make good returns, you need to do your research, focus on facts and not listen to rumours. -Niew

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The demand for old or rare Malaysian banknotes and coins has surged over the past five years. Local purveyors of these pieces of history give their views on the prospects of these alternative assets.

 

Collecting old or rare banknotes and coins is becoming popular among investors. This passion investment is often seen as a way to diversify from equities, especially in volatile times.

The alternative investment provides good returns, according to Dickson Niew, a numismatist and owner of Dickson Niew Collection, a shop that specialises in rare coins and banknotes. Based on his observation and an analysis of Malaysian banknotes, prices had increased 20% year on year from 1991 to 2010.

“Also, I think there was more than a 300% increase in the demand for local banknotes and coins from 2000 to 2015. The demand comes especially from the Malay community because as the economy grows, the wealth of the middle-income bracket increases, allowing them to afford such investments. Also, there are now many Facebook groups and blogs on banknotes and coins,” he says.

The prices of old or rare Malaysian banknotes and coins go up or down depending on the demand, supply and trend, says Niew. For instance, if buying Straits Settlements currency becomes a trend, then the banknotes will fetch a high price. 

“The peak was in 2013 and 2014, when the average graded coins that were worth RM100 jumped to RM1,200 because they were highly graded by international grading houses. Now, these coins are only worth RM300 because there are too many of them in the market.” 

Furthermore, better quality graded coins have emerged. So, the demand has been redirected to these coins. “As the prices of average coins are now low, it is what we call a buyer’s market — a good time to buy and hold,” says Niew.

According to Steven Tan, owner of International Stamp & Coin Sdn Bhd and author of Standard Catalogue of Malaysia-Singapore-Brunei Coins and Paper Money, collecting coins and banknotes is a growing trend among young Malaysians.

“A decade ago or so, there were fewer than 10 shops in Malaysia selling banknotes and coins. But now, there are hundreds of them. Many youngsters are collecting banknotes and coins because they promise good returns,” he says. 

“For example, a regular issue Malaya 10 cent uncirculated note was only worth RM20 in 1976. But from the year 2000, prices started at RM680. This kind of appreciation is very encouraging for new investors.”

Tan, who has been in the business for more than 50 years, says collecting old or rare banknotes and coins is a risk-free investment and will remain so in the future. “In an interview with a Chinese language newspaper in 1986, I said it was a no-risk investment. I still say that today, as the longer you keep a currency, the more it appreciates, especially if it is in mint condition.”

However, he says he cannot put a number on the minimum return one can get as it depends on supply and demand — and sometimes, luck. “Years ago, I sold a friend a set of solid numbered notes. Solid numbers here mean having consecutive ones, twos or threes in the note’s serial numbers. I sold him 10 pieces for RM380. About 10 years later, I heard they were auctioned off for RM8,000.”

Numbered notes have serial numbers printed on the back to record how many pieces were issued. 

Niew compares old or rare banknotes and coins to blue-chip stocks. “These currencies are just like blue-chip stocks — steady and consistent. Of course, to make good returns, you need to do your research, focus on facts and not listen to rumours.”

 

WHAT TO LOOK FOR 

Tan says the first thing to look for when determining whether a coin or banknote has investment value is the mintage, or the total number of coins or banknotes that were issued into circulation.

“For more recent coins, such as the commemorative ones, it is easier to tabulate the price appreciation because when Bank Negara Malaysia releases them, it announces the mintage. Usually, the quantity issued is small — only 50 or 1,000 — unlike other Asian countries, which release 10,000 to 30,000 coins,” he says. 

“When there are thousands of collectors in Malaysia, a mintage of 1,000 is not enough to meet the demand. So, if you lined up at Bank Negara to buy a coin with a mintage of only 50, you could immediately sell what you purchased for a 100% profit.”

Niew says it is important to look at the dates as well. “If the coins are graded ‘proof’, it means they are very scarce. A scarce coin that has not been graded ‘proof’ may only fetch RM1,000. But one that has been graded ‘proof’ can cost RM30,000.” 

He adds that it is a common misconception that only old currencies are expensive or valuable. “Sometimes, modern ones can be expensive as well, as long as the mintage is low and their condition is of high quality. 

“For instance, the earlier commemorative coins had mintages of 50,000 to 100,000. So, a 1976 gold coin with a mintage of 50,000 is worth RM1,000 while a 2000 silver coin with a mintage of only 500 is worth RM4,000.”

Tan offers another example of what could drive the value of a coin. “Remember the one sen coin? It was made of copper-clad steel. In 1976, some were also made of bronze. I discovered this myself because that year, I dealt with quite a lot of wholesale coins, selling one-cent coins to the US and the UK for three cents per coin. 

“One day, as I was filling the parcel, I noticed that the rim of some of the coins, instead of being all bronze-red, was half silver and half red. Also, I found that they were not magnetised, compared with the usual ones. 

“I sifted through all 5,000 coins and found only five odd ones. So, I bought 20,000 more coins and found 90 of the odd ones. This particular odd coin sold for RM600 in 2003. Now, it is worth RM8,000 apiece.” 

As for banknotes, Tan says the most bankable ones have solid issue numbers, such as straight 2s or 3s. He adds that the demand for these banknotes has increased exponentially. He remembers paying RM10,000 for a set several years ago.

“We could resell the notes at 50% profit. But now, because of public auctions, some of which are held by Bank Negara, the profit made from these notes could be a hundred times more.

“Previously, the central bank held no auctions at all for banknotes. However, as demand picked up a few years ago, it now auctions off these fancy or solid numbers to the public twice or thrice a year. Previously, these solid numbers were sold for RM1,000 or RM2,000. But now, they can command RM20,000 to RM40,000 apiece.”

Another banknote that promises good returns is the replacement note, he says. “Sometimes, there are errors in the banknotes. For example, out of 100 notes printed, three may have defects, such as misaligned margins. 

“Replacement notes are additionally printed banknotes to replace those with errors. These replacements are issued with different serial numbers, beginning with Z, ZZ or X, depending on the set printed. These are very expensive because the quantity is very small. For one million notes printed, there may only be 100 or 1,000 replacement notes.”

According to Tan’s book, among the most expensive replacement notes were the RM2 ones. The Malaysia 8th series RM2 notes, signed by the then Bank Negara governor Tan Sri Ahmad Mohd Don, was in circulation from 1996 to 1998. 

The most common serial numbers of these banknotes begin with the prefix AA, which can cost RM10 to RM60 each. Those with the prefix DF can be priced at RM30 to RM80 apiece. The banknotes that come with the prefix ZB are the most expensive — commanding RM1,500 to RM3,500 each — because they are the scarcest. 

Niew says it is important to keep in mind other factors that could contribute to the overall return on investment. “For example, the Government of the Straits Settlements 10 Dollar note, used from 1931 to 1935, was worth RM370 in 1985. In 2000, it was worth RM3,400. And in 2008, it was worth RM50,000. 

“The jump in prices is due to the fact that as each year passes, there is a possibility that a collection — especially of pre-1957 banknotes — could get destroyed. For instance, if your father’s collection suffered a catastrophe, such as a flood or fire, there would be fewer of these banknotes. As there would be fewer of these banknotes in the market, the price would increase.”

Keith Heddle, managing director of investments at Stanley Gibbons, says specialist knowledge is needed to determine the investment value of rare coins, among other things. “You need specialist knowledge. The key drivers are rarity, condition and marketability. Condition is absolutely paramount and to judge it takes an expert eye.”

 

COLLECTING A PIECE OF HISTORY

An important thing to consider when collecting currencies, especially old ones, is their historical relevance. As Malaysia’s history includes a colonial period, one should also consider the entire breadth of banknotes and coins that has been issued when amassing a collection, says Niew. 

“Old currencies are increasingly difficult to obtain. The early 1890s Straits Settlements banknotes came with the picture of Queen Victoria and King George V. Malaya banknotes came with the picture of King George VI. 

“Before independence (from 1953 to 1961), the Malaya British Borneo banknotes came with the picture of Queen Elizabeth II … these are quite rare. If these are kept in mint condition and in a complete set, they are worth a fortune.”

Niew says the Frank Goon collection is one of the most well-known. Goon is a Singapore-based developer and a relative of businessman Robert Kuok. 

“When Spink, a famous auction house, published the collection in a coffee table book in 2015, the collection was worth S$20 million. Today, it is worth S$25 million.

“Goon wanted to sell his collection last year, but the Singapore government halted the sale and held the collection back for two years. It is being displayed in Singapore’s national museum.”

The same cannot be said for coins though. Niew says coins from the colonial era are plentiful in the market, unlike banknotes. “For example, the one cent square bronze coins from the 1920s are almost 100 years old. However, as most of them are not in mint condition, the value of the coin is only RM3. 

“If it is in mint condition, it can go up to RM250. But once it has a slight scratch, it loses a third of its value, and so on.”

Niew adds that Malaysians should be aware of and appreciate the country’s history and collect local currencies as there is a market for them, instead of collecting currencies from all over the world. For instance, a collector would have to fly all the way to Brazil to sell a collection of its banknotes for a good price.

“I always encourage investors to collect something they are familiar with. If not, it is likely that they will miss or be ignorant of the price cycle as they are not on the ground in that country. This could lead to a loss of profit.”

 

GRADING HOUSES

As many new and even experienced investors have been cheated of their money, Malaysian collectors, investors and dealers are increasingly reliant on grading houses, even if it means spending a little more to have the banknotes and coins professionally authenticated and graded.  

Niew says as there are no professional grading bodies in the country, the go-to grading houses are Paper Money Guarantee (PMG) for banknotes and Numismatic Guaranty Corp (NGC) or Professional Coin Grading Service (PGCS) for coins. All of these grading houses are in the US and local collectors can mail their banknotes or coins to them. 

“As a member of the Malaysia Numismatic Society and also because of my experience, I am regularly called upon to make statements in court or for the police when it comes to determining authentic or fake coins. However, if you are seeking internationally recognised professionals to grade your collection, there are plenty abroad — China, South Korea, Poland and many other countries have their own,” he says.

“The famous ones are PMG, PGCS and NGC. When your items are graded by them, the grading is guaranteed for 10 years. They will pack and seal your banknote or coin in plastic and label it with a code, serial number and grade.”

Niew says there is a minimum charge of RM120 to RM150 per item verified and graded. “This depends on the value of your notes. The higher the value, the higher the charge.”

But for those who cannot afford to have their banknotes or coins authenticated, he offers some tips on how to avoid getting ripped off. “First, do your homework. Do plenty of research and only buy from trustworthy dealers. Avoid buying from just one dealer, including myself — do cross-check what I tell you as well as I could have made a mistake, such as in terms of pricing. 

“Attend classes, seminars, coin fairs and auction houses too. There are no shortcuts to this.”

 

HOW TO START COLLECTING

Tan says the best way to start collecting banknotes is to buy stacks of 100s of RM1, RM5, RM10 and so on during major festivals such as Hari Raya Aidilfitri or Chinese New Year, when new notes come into circulation. 

“The price will appreciate, of course, but how steeply depends on the demand and supply. If you are lucky, you can end up with rare replacement notes and can make great returns from that.

“Most importantly, keep the banknotes in uncirculated or mint condition. Do not fold or soil them. Handle them with care and keep them in their original condition in a safe place. The same goes for coins.”

And most important of all, do not stress over the returns, says Tan. “The returns or profits from these coins and banknotes are not absolute and they depend on your luck. But if you enjoy collecting them, or completing a series or collection of coins and banknotes of a certain period, that — to me — is the best return on investment.” 

 

 

Healthy growth in global coin market 

 

Global coin investments have grown exponentially over the past decade. According to the Knight Frank Luxury Investment Index, these investments have grown 195% in the last 10 years. This year, however, the index recorded a slightly slower growth of 6%, compared with 13% last year.

There are a number of reasons real assets such as coins attract investor interest, says Keith Heddle, managing director of investments at Stanley Gibbons, a UK-based alternative investment firm. 

He says the demand for these kinds of investments is growing not only due to the expanding global, educated, digitally savvy middle class “who are looking to reclaim their heritage and buy items of beauty and cultural significance but also investors looking for portfolio diversification and wealth protection since the crash of 2008/09”.

“Many of our investors are holding too much cash or are overexposed to equities or have seen a part of their portfolio underperform and are looking for an alternative. They like the fact that tangible, heritage assets are uncorrelated with mainstream financial assets,” says Heddle.

“They also recognise that their markets are driven largely by collectors and more sophisticated and cultured investors, not by speculation and market whimsy, and that the primary market driver is supply-demand. Supply is always limited for authentic, rare items in the best condition while demand is gradually increasing from a growing, global middle class, among others.”

He also says many investors like the romance of owning a slice of history, something that resonates through time and may have played a part in fuelling the rise or fall of dynasties, both ancient and modern.  

According to Stanley Gibbon’s GB200 Rare Coin Index, old coins in the international market have a compound annual growth rate of 12.7%. The index tracks 14 years of coin price movements based on the independent Spink catalogue, which is published by Spink & Son, an auction and collectible company established in 1666, that is known for its sales of coins and banknotes, among others. 

However, Heddle cautions that it all depends on the quality and rarity of the coins and how long investors hold on to them. Hence, how they perform against bonds or equities depends on the investment strategy, much like any other investment.

He is cautiously optimistic about rare coin investments versus traditional investments over the next year or two. “You cannot strike any more Julius Caesar aurei, nor any more Queen Victoria Una and the Lion coins, so supply is finite while demand is growing. If markets wobble or even crash, you will still have your tangible, heritage asset, imbued with history. That would suggest a continued rosy future,” he says.

 

 

Grade or condition of coins

 

According to Steven Tan’s Standard Catalogue of Malaysia-Singapore-Brunei Coins and Paper Money (22nd edition), the following terms are used to denote the condition of coins:

1. Proof (P) — Coins issued are of restricted quantity or limited edition and the quality is above that of other coins meant for circulation. The details are sharp, have extreme mirror-like brilliance as well as frosted surface on the raised part of the coin.

 

2. Brilliant uncirculated (BU) — Coins are high quality production-run issues minted for circulation, have full original lustre and are free from defects or mint bag marks.

 

3. Uncirculated coins (UNC) — Coins that have no signs of circulation or handling, but have traces of mint bag marks.

 

4. Extremely fine coins (EF) — Coins with a slight degree of wear on the design, particularly on the portrait’s hairlines and central figures of armorial bearing.

 

5. Very fine coins (VF) — Coins that show a fair degree of wear on the design. The raised lettering or design of the coin may be slightly worn or flattened. However, the details are still sharp. 

 

6. Fine (F) — Coins are considerably worn out, particularly the portrait’s hairlines and the central figures of armorial bearing. Some details may remain visible with some minor nicks and scratches. 

 

7. Very good (VG) — A misnomer as this means the coin is no longer in good condition. It shows considerable wear, with most of the high points of design remaining visible. It may be stained and have scratches and nicks. 

 

Other terms:

1. Unique: Only one piece available in the market

2. S: Scarce, only two or three pieces known

3. RRR: Extremely rare

4. RR: Very rare

5. R: Rare

 

 

Grade or condition of banknotes

 

According to Steven Tan’s Standard Catalogue of Malaysia-Singapore-Brunei Coins and Paper Money (22nd edition), the following terms are used to define the grade or quality of banknotes:

 

1. Uncirculated or mint condition (UNC) — The banknote has no evidence of folds, circulation or handling. The quality is pristine, brand new and perfectly preserved. 

 

2. Extremely fine condition (EF) — The banknote has nearly uncirculated quality, with the slightest signs of wear or light folds. Almost perfect in all other respects.

 

3. Very fine (VF) — A banknote with signs of wear and folds, slight wrinkles or slight traces of dirt with no tears at the edges. 

 

4. Fine (F) — A banknote that is considerably worn out and circulated. Feels somewhat limp, with creased folds, wrinkles and dirt, and very minor tears along the edges.

 

5. Very good (VG) — A banknote with obvious damage and dirt. It may be heavily soiled, with edges torn. However, the overall design is still visible.