Question

How do the practices of seinorage and debasement impact the value of specie standard money?

Answer 1

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.

Debasement was also the result of the value of the precious metal content rising above the face value of coins. As the market price of precious metal rose, the intrinsic value of coins would eventually rise above the face value and so a profit could be made from using coins as bullion rather than monetary instrument. This gave an incentive to money changers and mint masters to practice illegal debasement via clipping and sweating. Coins would also be melted down and exported. To anticipate these illegal debasements and preserve the quality and quantity of coins, the king would either debase or cry up the coinage (i.e., raise the face value of coins). Thus, debasement had its legitimate purposes and was welcome by the population if done to preserve the stability of the coinage.

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.