Financial Intelligence

The History of Currency Debasement

Hello and welcome to today’s dialogue. Last week, we talked about quantitative easing and explained it to be the printing of money. We talked about the side effects of quantitative easing and debasement of the currency as one of those effects. You can read this enlightening piece by clicking the blue button below.

Today, we discuss the history of currency debasement.

The history of currency debasement stretches back to ancient times, where rulers and emperors began to tamper with the content of their coins. These coins were often made from precious metals like gold and silver, and their value was based on the metal they contained. However, as empires grew, so did their expenses, leading to creative ways of funding their ambitions. These ambitions included new physical infrastructures like monuments- roads, seaports and even wars.

One of the earliest recorded instances of debasement can be traced back to the Roman Empire. In the 3rd century AD, Roman rulers began to reduce the silver content of their denarius coins. These coins were once pure silver but were gradually replaced with lower-quality alloys, making them worth less. This enabled the rulers to create more coins from the same amount of silver, which seemed like a solution to their financial challenges at the time. However, the consequence was soaring inflation and a decrease in the purchasing power of the currency.

Moving forward, Europe faced several instances of debasement during the middle ages. Rulers often resorted to mixing precious metals with cheaper metals to increase the number of coins in circulation. This practice led to economic instability, as the value of currency continued to erode. As societies became more interconnected through trade, the impact of debasement spread far beyond the local economy, affecting international transactions as well.

In more recent times, a prominent example of hyperinflation caused by currency debasement can be seen in Zimbabwe. In the early 2000s, the government of Zimbabwe printed an excessive amount of money to fund its expenses. This flood of currency led to hyperinflation, where prices spiraled out of control, and the Zimbabwean dollar lost its value very quickly. Citizens had to carry bags of cash just to buy basic necessities, and the country's economy was plunged into turmoil.

Understanding the history of debasement is crucial for financial intelligence. It highlights the importance of responsible monetary policies and the potential consequences of poor ones. As individuals, being aware of the impact of currency debasement empowers you to make informed financial decisions. To mitigate its impact, knowing when and where to invest, holding different asset classes, and staying informed about economic policies can help safeguard against the erosion of your wealth.

Photo by Ikrash Muhammad on Unsplash

‘‘I have seen real misery here on earth: Money saved is a curse to its owners.’’

ECCLESIASTES 5:13 (NCV)