What Is Currency Debasement?

Currency debasement refers to the lowerin✃g of the value of a currencܫy. It is primarily associated with coins made from precious metals, such as gold and silver.

A currency is debased when the co🐓ins are made with a mix of precious metals and base metals as opposed to purely precious metals. The greater the amount of base metals added to a coin💮 compared to precious metals, the further a currency is debased.

Understanding Currency Debasement

Currencies consisted of metal coins before the use of paper and polymer money began in modern times. These coins were most commonly made with either 澳洲幸运5官方开奖结果体彩网:gold or silver. As such, they carried the value of that🎃 p💞recious metal.

Coins made from precious metals are still in use. Gold and silver bullion are still commonly owned and traded. However, precious metals are no longer a primary form of currency and are not in wide circulation, especially on a day-to-day basis.

When any form of currency that is made from a precious metal is mixed with a metal of inferior quality or value, it is said to be debased. The face value of the coins remains the same but the 澳洲幸运5官方开奖结果体彩网:intrinsic value decreases, which lead൲s to inflation because the m♑oney is worth less.

Though gold and silver coins aren't commonly used in modern economic times, debasement can still occur if a government prints too much money, increasing the 澳洲幸运5官方开奖结果体彩网:money supply. This also leads to 澳洲幸运5官方开奖结果体彩网:inflation as there is more money but not an e💃qual 💧increase in output.

Reasons for Currency Debasement

Currency debasement has occurred throughout history. In ancient times, governments would debase their൩ currency by adding a metal of lower value to the gold or silver content of the coins.

By mixing the precious metals with a lower quality metal, they were able to create additional coins of the same denomination, essentially expanding the money supply, but for a 🦹fraction of the cost.

Governments that debase their currencies believe they can meet their financial obligations more easi💯ly or have more money to spend on infrastructure and domestic spending projects to spur the economy.

Currency debasement was a popular method of funding wars, in that governments effectively created more money without having to increase taxes to pay for conflicts.

All these maneuvers are shortsighted because such debasement eventually leads to a crash. Currency debasement also can have negative consequences for a country's population because it often puts 澳洲幸运5官方开奖结果体彩网:inflationary pressure on the economy.

Examples of Debasement

Roman emperor Nero began debasing Roman currency around 60 AD by reducing its silver content from 100% to 90%. Over the next 150 years, the silver content was reduced to 50%. By 265 AD, the silver content was down to 0.5%.

The German government reduced the value of the mark from around eight per U.S. dollar to 184 per U.S. dollar in the early 1920s by printing money to meet its financial obligations. The mark depreciated to 7,350 per U.S. dollar by 1922 and eventually collapsed. The currency reached 4.2 trillion marks per U.S. dollar before Germany returned to the 澳洲幸运5官方开奖结果体彩网:gold standard.

The Bottom Line

Currency debasement is the reduction of a currency's intrinsic value. It was traditionally done in societies that minted coins using precious metals. These metals were mixed with those of low quality, which led to a drop in their value while the face value remained the same.

Don't confuse this concept with devaluation. Devaluation refers to the deliberate reduction in a currency's value relative to other currencies to make it more attractive in the forex market.