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 #372 |
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| National Bank of Catalina Situation The National Bank of Catalina was the only bank on Santa Catalina Island in the late 1980s. About 85% of the residents on the Island had personal accounts at the Bank, yet a good number of the merchants doing business there maintained business accounts at other banks on the mainland. Problem The bank wanted to keep its options open. Land developers were building new homes and a water desalination plant on the Island and the NBOC believed it needed to galvanize its relationships with merchants to protect its interests from competition on the mainland. Solution The Santa Catalina Trade Dollar: The agency sat down with John Phillips, President of the bank and discussed the ins and outs of the banking business on Santa Catalina. Two weeks later the agency presented the following scenario:Throughout recorded history coins and medals have been collected typically for not just their historic, monetary or face values but for their artistic and intrinsic values. With time a coin tends to become more valueable. Value ultimately is determined by the number of coins struck, the number extant, the history behind the minting, the value of the metal used, the condition of a coin and the completeness of the set in which it is found. Collectability can be planned and managed. Managed coin programs are token promotions. All mints make coins. Some even make quality three dimentional works of art in their medalions and commemoratives. But few, if any, were providing full-dimension, world class quality sculptured coins with full service marketing and management as backup. Unlike numistic or souvenir coins wholesaled into distribution for momentary consideration by shoppers who make elective purchase decisions at retail, managed coins are tokens methodically substituted into a tourist-prone trading area through a banking trust, as a colorful or expiditious alternative to ordinary money. Managed coins may be used in trade or purchased at will by shoppers on a try-before-you-buy basis. They may be redeemed at participating merchant locations or at participating banks for a full refund in the trading area within the trading year minted on the reverse side of each coin. When managed successfully they can become "institutions" in the community.Yet, tokens are not US currency. The US Trade Dollar: There have been times when the United States minted coins for promotional purposes. For example, The United States Trade Dollar was minted between 1873 and 1885. Issued specifically to promote trade in the Orient by competing with the Mexican Eight Real and the other Dollar-sized coins of other countries, it weighed 420 grains compared to the 412.5 grains of regular US Silver Dollars. When first coined, the US Trade Dollar was legal tender in the United States with a face value of $1, yet its actual exchange value rapidly increased to $5 US on the open market. With the decline in the price of silver bullion in 1876, Congress repealed the "Legal Tender" provision authorizing the US Treasury to limit coinage to export demand only. In 1887, a law was passed authorizing the Treasury to redeem all trade dollars, and the Government got out of the Trade Dollar Business. Seignorage: The difference between tokens distributed and tokens redeemed is the key to managing tokens in circulation effectively and profitably in a given trading area during a trading year. The token coin is not currency. Only the U.S. Government has the power to issue legal tender. It is, however, a legal token sponsored by an independent entity (i.e., an association of business merchants, a chamber of commerce, a transit authority, a casino, an amusement park, or any group of independent investors who guarantee its constant relationship to "Legal Tender." |
As a promotional concept the trade dollar depends on the
interdependence of participating merchants and banks within the trading
area. It is accepted and freely exchanged within the trading area
because it is guaranteed to be redeemable by trusted sponsors at face
value. It carries a redemption expiration date and is backed 100% by US
currency held in business trusts until after expiration. In other
words, it is "Good For $1 In Trade At Participating Merchants" and
trusts at participating banks during the tradeing year. Trade dollars
not redeeemed
prior to expiration are declared a de facto sale by the trust
with seignorage accruing to investors and other designated
beneficiaries
after expenses. Gresham's Law: Whenever two currencies -- having the same face value but different intrinsic values -- are placed into circulation side-by-side, the currency with the greater intrinsic value will be hoarded and disappear from circulation. -- Sir Thomas Gresham, 1579. The axiomatic purpose for a trade dollar promotion is value added merchandising. The premise for sponsorship is a self-staining promotion with the potential for return on investment among those willing to sponsor it. Unlike "phony money" such as printed cirtificates coin tokens -- although more expensive to mint -- actually offer more profit to their sponsors. Coins can disappear from circulation at a faster rate than script. Script tends to be spent within the trading area as opposed to saved or hoarded as souvenirs. Coins require virtually no maintenance. Script requires constant replacement or maintenance. Price merchandising, discounting, rebates and seasonal sales have a discrediting effect among consumers who see these tactics as gimics by merchants to lure them in. Yet, managed trade dollar programs among representative merchants in a trading zone can turn this vicious and negative price syndrome inside out. When trade dollars are effectively embraced by merhants and banks in a trading area. the emphasis is taken off of price merchandising. Retailers can offer free trade dollars with purchase, or added value for trade dollars applied towards purchase -- i.e., giving double value for trade dollars towards purchase is perceived as a better deal than giving 50% off purchase; "Three trade dollars will get you five towards purchase" seems to be a much better deal than getting 40% off purchase." And, travel agencies, hotels, carriers, and tour packagers can develop cross marketing promotions using "Free Trade Dollars" as incentives to attract and book vacations for their customers. The agency presented the concept of a ten-year managed coin promotion where three coin designs would be introduced each year featuring historic, environmental and artistic components that were unique to the Island. By sponsoring a promotion to bring tourists to Santa Catalina, by getting all the merchants behind such a program, and by monitoring and managing the trade dollars in circuilation during the promotion, The National Bank would be giving the Island's business community something it could not refuse; an ongoing promotion every participating merchant could and would want to participate in. Also, merchants would need to open a local opporational account at the National Bank of Catalina to participate.. Results The Catalina Trade Dollar "More Splash For Your Cash Promotion lasted three years. Less than 2% of the trade dollars that went into circulation returned to trust accounts by year's end. This unique promotion returned a 43% profit to its investors, while awarding 10% to the Santa Catalina Chamber of Commerce, as it signed new business for the National Bank of Catalina. And by 1992, the Bank had landed virtually every retail merchant account on the Island. More significant was the splash it created with retilers and in publicity through media and tourists. In 1993, the National Bank of Catalina was sold to the Bank of San Pedro, which discontinued the promotion. The success of the promotion on Santa Catalina later served as a pro forma for the Maui Trade Dollar that followed in 1995. To learn more, click here. |