The debasement of the coinage - Research Paper Example

? Coins by Coins have been used as collectors’ items and mediums of expression, but largely used as currency since historical times. Historical minting techniques are still being used, though nowadays people leverage on technology for efficiency. Precious metals and mints require techniques used to ensure that the value of the constituent precious metal does not exceed the face value of the coin. Understanding these techniques plays a critical role in understanding inflation control. Introduction The use of precious metals as a medium of exchange is said to have began in Egypt, though this took the form of rings, wafers and bars. According to Vincent Lannoye, Lydia, nowadays referred to as Turkey, was the first smelter of small ingots having a royal seal to certify legality and weight (19). Rulers quickly integrated these micro-ingots into their economies. The Lydian people accepted payments in electrum metal, which is an alloy of gold and natural silver. These micro-ingots developed into coins that were minted by masculine men who could strike blank discs to leave engravings that certified the origin of the coins. Through the centuries, coin making, referred to as coinage, improved fast. More regular coins became available through the replacement of the bank discs with regular laminated metal plates. Later, quasi-uniform coins came into existence with the replacement of the hammer with the screw-press and furthered the adoption of the rolling-press, which was rotated by horse power. Minting Minting of coins has been a precise and well-guarded function of selected mints commissioned and governed by respective authorities in various countries. From the outset, the minting procedure involved producing precise blanks with defined weights and composition and producing coin-striking tools. Principally, these requirements still hold from historical times, as observed by the Marshall Cavendish Corporation, only that the methods have been improving with technical progress and industrialization (507). Historically, the Lydian people poured the molten electrum into suitable forms, starting from simple moulds to more complicated ones. In the 16th Century, the thickness of metal sheets was reduced through hammering with the blanks cut out using shears, then filed and hammered to the desired thickness and weight. The period about 1550 saw a German silversmith, known as Marx Schwab, invent screw pressing. This involved two heavy iron screws pressing the coin metal so as to achieve the desired thickness. Roller-mills facilitated the production of uniform metal strips from which metal punches cut the blanks (Christopher Howgego 76). The mechanized form of this technique still finds application in modern coin minting. The Industrial Age discovery since 1830 allowed hundreds of circulation coins to be produced in a minute, with modern mechanical mints adopting even faster speeds. Therefore, the United States Mint, the manufacturer and distributor of American coins, has its modern process borrowed from this history. The mint punches blanks from coiled metal strips, referred to as blanking. This would then be softened through heating in an annealing furnace, and then taken through a washer and dryer. The blanks then pass through an upsetting mill onto a coining press that stamps the inscriptions and designs to guarantee genuineness. The resultant coins would then be inspected for quality, counted and bagged. Governments have throughout the history supplied more coins than would be possible if the coins were made of pure precious metals. Normally, some portion of the precious metal used to make the coin would be replaced by a base metal. Howgego states that copper and nickel are some of the commonly used base metals (43). This in turn reduces the intrinsic value of the coin, referred to as “debasing.” This way, authorities produce a lot more coins that it would have been otherwise possible. C. E. Challis observes that the coins in circulation could have fiat values lower than the value of the component metals, though initially these coins were not issued with such values (442). The shortfall only arose due to inflation, with the market value of the metal increasing beyond the value declared of the coin. To curb such, the government reduces the amount of metal in such coins. Another less important purpose for debasement, according to Lannoye is to make the coin harder so as to prevent quick wearing down (41). The US practices debasement on its coinage system so as to find solutions to inflation. In 1982, it reduced copper from its one-cent coin to 2.5% with the other 97.5% being zinc, and though the coin still remains in circulation, its purchasing power has significantly gone down. According to Challis, this was necessitated by the fact that fraudulent smelters took the coins from circulation and smelted them for their metal value (443). This negatively impacted on the treasury because it costs more than a coin’s face value to manufacture them. In fact, this was a major deterrent factor in minting coins from precious metals like gold and silver. Uses of Coins In modern economies, coins have been embraced as currency, based on their acceptable status as fiat money. According to Challis, this implies that the government law decrees the value of coins and would henceforth be determined by the free market, just like the national currencies, through domestic trade and on global foreign exchange markets (442). These monetary tokens are not backed by the constituent metal value but through government guarantee; coins made of the same value as notes have little economic difference. When the difference in the fiat and metal values of the coins rises to an extremity, illicit smelters could hoard or remove the coins from circulation to benefit from the metal value. Other than debasement, governments have put in place legislations to curb such illicit practices. The rarity and quality of design of a coin gives its value as a collector’s item. Bullion coins would be valued by collectors based on the value of their platinum, silver or gold content. Lannoye cites non-monetized coins, such as the American Gold Eagle and the Canadian Maple Leaf which despite being minted with nominal face values lower than their constituent metal values (45). The coins do not serve as currency and hence have no relevance. Coins also have a symbolic role to people who left remembrance messages on them following conviction or periods of war (Howgego 88). For instance, in the 18th and 19th centuries, the British Isles convicted criminals sentenced to Australia. The convicts defaced and smoothed coins and then engraved remembrance messages on them, popularly referred to as “leaden hearts” or “convict love tokens.” Conclusion The use of coins as currency emanates from historical times with modern minting borrowing heavily from the historical techniques. Even though made of precious metals, governments have legislations to control possible inflation coupled with debasement of the coins. In fact, modern coins use limited precious metals, if any. Despite the depreciating purchasing power of coins, they continue to play a significant role in economies, hence the importance of controlling their supply and minting procedure. Works Cited Challis, C. E. “The Debasement of the Coinage, 1542 – 1551.” The Economic History Review 20.3 (1967): 441 – 466. Howgego, Christopher. Ancient History from Coins. Birmingham, UK: Routledge, 2013. Print. Lannoye, Vincent. The History of Money and Banking: Introduction to Monetary Economics. New York, NY: Author, 2011. Print. Marshall Cavendish Corporation. How It Works: Science and Technology. Tarrytown, NY: Author, 2003. Print. United States Mint. How Coins Are Made. 2013. Web. 2 Nov. 2013. Read More