MONETARY DEBASEMENT

Debasement refers to the action or process of reducing the quality or value of something. When talking about fiat currencies, debasement traditionally refers to the practice of reducing the precious metal content in coins while keeping their nominal value the same, thereby diluting the coin's intrinsic worth. In a modern context, debasement has evolved to mean the reduction in the value or purchasing power of a currency — such as when central banks increase the supply of money, in the process lowering the nominal value of each unit.

UNDERSTANDING DEBASEMENT

Before paper money and coins made of cheap metals like nickel, currency consisted of coins made of precious metals like gold and silver. These were the most sought after metals of the time, giving them value beyond government decree. Debasement was a common practice to save on precious metals and use them in a mix of lower-value metals instead.

This practice of mixing the precious metals with a lower-quality metal means authorities could create additional coins with the same face value, expanding the money supply for a fraction of the cost compared to coins with more gold and silver content.

Today, coins and notes don't have inherent worth, they are simply tokens that represent value. This means debasement relies on supply: i.e. how many coins or notes the issuing body allows to circulate. Debasement went through different processes and methods over time; therefore, we can define old and new methods.

TRADITIONAL METHOD

Coin clipping, sweating, and plugging were the most common debasement processes used until the introduction of paper money. Such methods were employed both by malicious actors that counterfeited coins and by authorities that increased the number of coins in circulation.

Clipping involves "shaving" the coins' edges to remove some of the metal. As with sweating, the resulting clipped bits would be collected and used to make new counterfeit coins.

Sweating involves shaking coins vigorously in a bag until the edges of the coins come off and lay at the bottom. The pieces are then collected and used to create new coins.