Debasement

Debasement is the practice of lowering the value of currency. It is particularly 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 is reduced.

Examples

For example, the value of the denarius in Roman currency gradually decreased over time as the Roman government altered both the size and the silver content of the coin. 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.

Reasons for debasement

One reason a government will debase its currency is financial gain for the sovereign at the expense of citizens. By reducing the silver or gold content of a coin, a government can make more coins out of a given amount of specie. Inflation follows, allowing the sovereign to pay off or repudiate government bonds.^[1] However, the purchasing power of the citizens’ currency has been reduced.

Another reason is to end a deflationary spiral.

Effects of debasement

Debasement lowers the value of the coinage, causing inflation. Over time, it may even lead to a new coin being adopted as a standard currency, as when the Ottoman Akçe was replaced by the Kuruş (1 kurus = 120 akçe), with the para (1/40 kurus) as a subunit. The Kurus in turn later became a subdivision of the Lira.

Methods of debasement

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. A revenue, called seigniorage, is made on this minting process.

Other uses of the term

• Debasement is the formal term for removal of a knighthood or other honour. The last knight to be publicly debased was Sir Francis Mitchell. More recent examples include Sir Roger Casement, whose knighthood was cancelled for treason during the First World War, and Sir Anthony Blunt, whose knighthood was withdrawn in 1979.

• "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 silver content of the coin. In order to prevent this, silver and gold coins began to be produced with milled edges, an invention of Sir Isaac Newton, 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" in this article [1]

References

1. ^ Milton Friedman (1990). Free to choose: a personal statement. Houghton Mifflin Harcourt. p. 269. http://books.google.com/books?id=_e3aAj66xZQC&pg=PA269&lpg=PA269&dq=milton+friedman+free+to+choose+repudiation+of+debt.