Paper Money

Paper Money Market Analysis: Is a two-tier paper money market starting?

Time to let go of currency collector stereotypes

What one auctioneer rightly describes as the “most valuable piece of currency on the planet” is still a topic of conversation.

The note, the only Series 1890 $1,000 Treasury or coin note available to collectors, sold on Jan. 10 for $3,290,000, after opening at $1.2 million, during the Heritage Auctions Platinum Night auction at the Florida United Numismatists convention in Orlando, Fla.

The price of the note, a Friedberg 379b (in Paper Money of the United States by Arthur L. and Ira S. Friedberg), is noteworthy in itself.

But comparing that price to the $4,582,500 paid for the finest-certified 1787 Brasher, Punch on Wing doubloon, sold Jan. 9 by Heritage Auctions during the FUN sale, shows how far paper money has come in less than a generation.

The Brasher doubloon was off the market for close to 35 years. It last sold in 1979 for a then-record $430,000. Also in 1979, four months after that Brasher sale, a Series 1890 $1,000 Treasury or coin note sold for $110,000.

If we use the 1979 price as a base, the theoretical gain for this note in 2014 is roughly three times of that for the Brasher over the same time period. No one in 1979 would have believed such a gain would be possible.

Regardless of the length of time over which they are calculated, gains of the size described above are always startling.

For common large-size type notes in only Very Fine, during approximately the same period, we find across-the-board gains of around 500 percent, about the same as for a random sampling of Very Fine U.S. coins over this time.

In fact, given the amount of collectible paper currency outstanding, the possibility exists that the rate at which its prices increase could exceed that for coins.

It is clear that paper money collecting is no longer the coin hobby’s poor cousin. If the number of paper money collectors increases in the future, we can expect a parallel reaction in prices.

More than ever, auctions are driving the market, and for the high grades and rarities in any grade, certification by one of the two major grading services — PCGS Currency or Paper Money Guaranty — is virtually a requirement to ensure the best results.

Most issues of fractional currency, the vast majority of small-size issues, common large-size type notes, and all except “trophy” national bank notes are in abundant supply in dealer inventories and on bourse floors. But even there, third-party graded items are increasingly prevalent.

Are we witnessing the development of a two-tier market? Most likely we are, and we will need to recognize that prices for independently graded notes are going to be higher than for comparable “raw” or ungraded notes.

This is a function of the cost of grading and the expectation that demand for graded pieces will be higher.

At the same time, it will present an opportunity for collectors who rely on their own grading abilities and knowledge to maximize that advantage.

It is clear that the pejorative “ragpicker,” once used for a currency collector, can safely be moved to the dictionary of obsolete words.

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