The May/June issue of Paper Money, the official publication of the Society of Paper Money Collectors contained the first of a two-part series of
articles by Loren Gatch titled "When Institutions Fail". With permission, we're republishing Part II here - it was published in the July/August
2019 issue. Yeah, I added another meme. -Editor
Catalogs and other reference works are essential institutions of numismatics. In my previous column I used the bankruptcy of F+W Media, a major
publisher of numismatic works, as an opportunity to explore how their disappearance might harm collectors and students of numismatics alike. Earlier this year,
the sudden demise of PCGS Currency, a major Third Party Grader (TPG) of banknotes, has raised similar issues.
In some ways, the travails of PCGS Currency are more interesting because TPGs are a relatively new feature in the field of numismatics. First established
during the 1970s for coins, their activities spread later to encompass banknotes and currency. TPGs do a number of important things. First and foremost, they
arbitrate the inevitable disputes between buyers and sellers over what grade to give a coin or note. Second, TPGs authenticate the material they grade,
especially for high-value items. Third, and related to the first two services, TPGs help with attribution by labeling the materials they grade, according to
catalog number, variety, and provenance. Fourth and finally, they seal the coin or note in a tamper-resistant holder, ensuring that all that information—grade,
authentication, and attribution—corresponds to the correct item.
TPGs do these things for a fee, and millions of dollars have been spent getting various collectibles “holdered” or “slabbed”. Critics of this argue that
collectors ought to develop the expertise to judge their own material. Also, by encouraging people to buy the grade, not the note, TPGs tend to commodify the
hobby, contributing to cost escalations across small differences at the highest grades. While I have some sympathy for these views, I think they ignore the
real value such services provide. Much as even sophisticated investors consult rating agencies like Moody’s to tell them how risky bonds are, collectors can
rely on TPGs’ assessments before they commit to buy.
But it’s not enough for a TPG to grade an item and be done with it. The service presumes that the TPG stays in business to offer follow-up benefits like
cert verification, population reports, and registry sets. Above all, the confidence collectors have in the grade may depend on the sheer persistence of the
company that bestowed the grade in the first place. It would seem that, if a grading company were to disappear, that shouldn’t affect the validity of the
judgments it made about the coins and notes that it graded. Those judgments are independent of the existence of the company that made them. But what if they
At the end of last January, we experienced a test of this proposition when PCGS Currency suddenly shut down its operations. In the United States, currency
grading under the PCGS label was done not by Collectors Universe, Inc., the owner of that brand, but by another party, K3B, Inc., who had licensed the PCGS
name. For reasons that are unclear, that agreement was not renewed and the PCGS Currency website went dark. This event flummoxed currency collectors and
dealers alike. In the short run. what would become of all those notes in transit, or otherwise in the process of grading? In the medium term, how would
collectors access cert verifications to confirm information about holdered notes? What would become of the online set registries that collectors assemble with
pride? And over the long haul, what would happen to the trust that the numismatic market accords to PCGS grades, if PCGS Currency itself were no longer in
business? Paper Money Grading (PMG) a competitor, was quick to offer a crossover service to owners of PCGS-graded notes to take advantage of that fear.
Since PCGS Currency’s closure, the individuals behind it have re-invented themselves as Legacy Currency Grading, Inc. promising to maintain continuity with
all the benefits provided by their predecessor. This may, or may not, succeed. However, this episode raises questions not just about PCGS-graded notes, but
about the long-term viability of professional grading itself. This is a real issue, given the vast sums people spend on third-party certification. In contrast,
the cost of any single catalog represents a minor, one-time expense for a collector. As F+W Media shows, no catalog publisher lasts forever. Neither, for that
matter, will grading companies. Will collectors really tolerate the expense of repeatedly having the grades bestowed by some defunct TPG recertified by its
successor? That would not seem reasonable to me.
Maybe forty years from now, none of these TPGs will exist. By then, our grandchildren will be happily collecting holograms of their favorite notes,
certified on the blockchain, while the original objects will be sequestered permanently in vaults, protected against the ravages of climate change. And looking
back, maybe those grandchildren will wonder why we foolishly wasted millions of dollars paying for encapsulated opinions that weren’t designed to stand the
test of time.
To read the earlier E-Sylum article, see:
WHEN INSTITUTIONS FAIL: PART I (https://www.coinbooks.org/v22/esylum_v22n22a22.html)
For more information about The Society of Paper Money Collectors (SPMC), see:
Wayne Homren, Editor
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