Debasement

Debasement

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Encyclopedia
Debasement is the practice of lowering the value of currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

. It is particularly used in connection with commodity money
Commodity money
Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money....

 such as gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

 or silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...

 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
Denarius
In the Roman currency system, the denarius was a small silver coin first minted in 211 BC. It was the most common coin produced for circulation but was slowly debased until its replacement by the antoninianus...

 in Roman currency
Roman currency
The Roman currency during most of the Roman Republic and the western half of the Roman Empire consisted of coins including the aureus , the denarius , the sestertius , the dupondius , and the as...

 gradually decreased over time as the Roman
Ancient Rome
Ancient Rome was a thriving civilization that grew on the Italian Peninsula as early as the 8th century BC. Located along the Mediterranean Sea and centered on the city of Rome, it expanded to one of the largest empires in the ancient world....

 government altered both the size and the silver content of the coin. Originally, the silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...

 used was nearly pure, weighing about 4.5 gram
Gram
The gram is a metric system unit of mass....

s. From time to time, this was reduced. During the Julio-Claudian dynasty
Julio-Claudian Dynasty
The Julio-Claudian dynasty normally refers to the first five Roman Emperors: Augustus, Tiberius, Caligula , Claudius, and Nero, or the family to which they belonged; they ruled the Roman Empire from its formation, in the second half of the 1st century BC, until AD 68, when the last of the line,...

, the Denarius
Denarius
In the Roman currency system, the denarius was a small silver coin first minted in 211 BC. It was the most common coin produced for circulation but was slowly debased until its replacement by the antoninianus...

 contained approximately 4 grams of silver, and then was reduced to 3.8 grams under Nero
Nero
Nero , was Roman Emperor from 54 to 68, and the last in the Julio-Claudian dynasty. Nero was adopted by his great-uncle Claudius to become his heir and successor, and succeeded to the throne in 54 following Claudius' death....

. 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
Argenteus
The argenteus was a silver coin produced by the Roman Empire from the time of Diocletian's coinage reform in AD 294 to ca. AD 310. It was of similar weight and fineness as the denarius of the time of Nero...

.

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
Specie
Specie may refer to:* Coins or other metal money in mass circulation* Bullion coins* Hard money * Commodity money* Specie Circular, 1836 executive order by US President Andrew Jackson regarding hard money* Specie Payment Resumption Act...

. Inflation follows, allowing the sovereign to pay off or repudiate government bonds. 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
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

. Over time, it may even lead to a new coin being adopted as a standard currency, as when the Ottoman
Ottoman Empire
The Ottoman EmpireIt was usually referred to as the "Ottoman Empire", the "Turkish Empire", the "Ottoman Caliphate" or more commonly "Turkey" by its contemporaries...

 Akçe
Akçe
thumb|250px|AkçeA silver coin, the akçe was the chief monetary unit of the Ottoman Empire. The word "akçe" is derived from the Greek "" , the name of a Byzantine silver or billon coin, current in the region that eventually became the Ottoman Empire. The akçe is hence often called asper in English...

 was replaced by the Kuruş
Kurus
Kuruş is a Turkish currency subunit. Since 2005, one new Turkish lira is equal to 100 kuruş. The kuruş was also the standard unit of currency in the Ottoman Empire until 1844, and from that date until the late 1970s was a subdivision of the former lira. It was subdivided into 40 para , each of...

 (1 kurus = 120 akçe), with the para (1/40 kurus) as a subunit. The Kurus in turn later became a subdivision of the Lira
Lira
Lira is the name of the monetary unit of a number of countries, as well as the former currency of Italy, Malta, San Marino and the Vatican City and Israel. The term originates from the value of a Troy pound of high purity silver. The libra was the basis of the monetary system of the Roman Empire...

.

Methods of debasement



  • Methods of coin debasement
  • The mint
    Mint (coin)
    A mint is an industrial facility which manufactures coins for currency.The history of mints correlates closely with the history of coins. One difference is that the history of the mint is usually closely tied to the political situation of an era...

     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
    Seigniorage
    Seigniorage can have the following two meanings:* Seigniorage derived from specie—metal coins, is a tax, added to the total price of a coin , that a customer of the mint had to pay to the mint, and that was sent to the sovereign of the political area.* Seigniorage derived from notes is more...

    , is made on this minting process.

Other uses of the term

  • Debasement
    Debasement (knighthood)
    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 canceled for treason during the First World War and Sir Anthony Blunt, whose knighthood...

     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
    Treason
    In law, treason is the crime that covers some of the more extreme acts against one's sovereign or nation. Historically, treason also covered the murder of specific social superiors, such as the murder of a husband by his wife. Treason against the king was known as high treason and treason against a...

     during the First World War, and Sir Anthony Blunt
    Anthony Blunt
    Anthony Frederick Blunt , was a British art historian who was exposed as a Soviet spy late in his life.Blunt was Professor of the History of Art at the University of London, director of the Courtauld Institute of Art, Surveyor of the King's Pictures and London...

    , 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.
    United States
    The United States of America is a federal constitutional republic comprising fifty states and a federal district...

     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.