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  1. #1
    keannu's Avatar
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    Default debase the currency

    I'm sorry this is a kind of economics-related question, but when they "debase the currency" for financing, do they actually lower the absolute value of the currency?, then how does the government get more money from it?

    ex) The Roman Empire began when Rome discovered it could increase its energy supply by conquering its neighbors and commandeering their grain production and labor in the form of slavery to sustain its own needs. At first, the system worked well and Rome became wealthy....All of these required financing, either by taxes or by debasing the currency....

  2. #2
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    BobK is offline Harmless drudge
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    Default Re: debase the currency

    Quote Originally Posted by keannu View Post
    I'm sorry this is a kind of economics-related question, but when they "debase the currency" for financing, do they actually lower the absolute value of the currency?, then how does the government get more money from it?

    ex) The Roman Empire began when Rome discovered it could increase its energy supply by conquering its neighbors and commandeering their grain production and labor in the form of slavery to sustain its own needs. At first, the system worked well and Rome became wealthy....All of these required financing, either by taxes or by debasing the currency....
    I expect that in that context the word 'debasing' means what it says - increasng the percentage of base metal in the coinage. If the Roman Empire started making ('minting'*) gold coins with added iron it could still use them at face value.

    (Incidentally; this practice is what people are testing for when they bite a coin - not to make sure it's hard enough but to make sure it's soft enough.)

    b

    PS * This is the special word for making coins, not the word for making coins out of cheap alloy.
    Last edited by BobK; 16-Dec-2011 at 14:06. Reason: Added PS

  3. #3
    keannu's Avatar
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    Default Re: debase the currency

    Quote Originally Posted by BobK View Post
    I expect that in that context the word 'debasing' means what it says - increasng the percentage of base metal in the coinage. If the Roman Empire started making ('minting') gold coins with added iron it could still use them at face value.

    (Incidentally; this practice is what people are testing for when they bite a coin - not to make sure it's hard enough but to make sure it's soft enough.)

    b
    You mean they saved gold by adding base materials in coins for financing? How did it help financing?

  4. #4
    BobK's Avatar
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    Default Re: debase the currency

    At the time, a gold coin was (literally [and I mean that]) 'worth its weight in gold'. It costs, say, 10 gold coins to buy a load of grain. But if you melt five of those coins down with an equal weight of lead, and stamp the resulting alloy out in the form of 10, you then get your load of grain and keep five of the original gold pieces (paying only five, plus the price of an equal amount of lead).

    In the short term, this trick works. But in the long run people get wise to it.

    b

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    SoothingDave is offline VIP Member
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    Default Re: debase the currency

    Quote Originally Posted by keannu View Post
    You mean they saved gold by adding base materials in coins for financing? How did it help financing?
    It depends on having contracts, etc. valued in Roman coins. These are assuming a certain amount of gold per coin. If you change the amount of gold per coin, but still pay the same amount of coins, then you have satisfied your contract, but paid less real wealth (gold).

    If you look at the situation today, the governments of various nations owe debts to those both inside and outside of the nation. If the gov't can make its dollar worth less in real value (in terms of gold), then it is easier for it to pay back the debtors. They get the face value of their money returned, but the money that is returned is worth less in real value.

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