Debasement

A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nickel in the coin is reduced.

Starting with Nero in AD 64, the Romans continuously debased their silver coins until, by the end of the 3rd century, hardly any silver was left.

Debasement is a practice of governments, and in government debasement, governments make their debased coins legal tender, which is not something private minters can do given that the practice cannot be easily engaged in without a government requiring that people accept debased coins.[1]

Examples

Roman Empire

In Roman currency, the value of the denarius was gradually decreased over time as the Roman government altered both the size and the silver content of the coin.[2] Originally, the silver used was nearly pure, weighing about 4.5 grams. From time to time, this was reduced. During the Julio-Claudian dynasty, the denarius contained approximately 4 grams of silver, and then was reduced to 3.8 grams under Nero. The denarius continued to shrink in size and purity, until by the second half of the third century, it was only about 2% silver, and was replaced by the Argenteus.

Ottoman Empire

Weight of akçe in grams of silver and index.[3]

YearSilver (g)Index
1450–600.85100
1490–15000.6880
16000.2934
17000.1315
18000.0486

Effects

Debasement lowers the intrinsic value of the coinage and so more coins can be made with the same quantity of precious metal. If done too frequently, debasement may lead to a new coin being adopted as a standard currency, as when the Ottoman akçe was replaced by the kuruş (1 kuruş = 120 akçe), with the para (1/40 kuruş) as a subunit. The kuruş in turn later became a subdivision of the lira.

Methods
See also: Coin counterfeiting and Counterfeit money
  • Methods of coin debasement
  • The mint starts issuing coins of a certain face value, but with less metal content than previous issues. There will be an incentive to bring the old coins to the mint for re-minting – see Gresham's law. A revenue, called seigniorage, is made on this minting process.
  • "Debasement" is also sometimes used to refer to the tendency of silver or gold coins to be "shaved", that is, to have small amounts shaved off the edges of the coins by unscrupulous users, thereby reducing the actual precious metal content of the coin. In order to prevent this, silver and gold coins began to be produced with milled edges, as many coins still do by tradition, although they no longer contain valuable metals. For example, the U.S. quarter and dime have milled edges. Coins that have traditionally been made purely of base metals, such as the U.S. nickel or the penny, are more likely to have unmilled edges.
  • By analogy, "debased currency" is sometimes used for anything whose value has been reduced, such as "Stardom is an utterly debased currency" [4]

See also

References
  1. Robert Wenzel (August 26, 2011). "Another Anti-Gold Howler from Nouriel Roubini", Economic Policy
  2. "This infographic shows how currency debasement contributed to the fall of Rome," Insider.
  3. Malanima, Paolo (2009). Pre-Modern European Economy: One Thousand Years (10th-19th Centuries). BRILL. p. 198. ISBN 9789004178229. Retrieved 19 June 2014.
  4. Kirk, David (23 November 2003). "Star no longer a big enough word for peerless Wilkinson". Telegraph.
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