Key is exchangeability between credit and debit ratios; or in payment of taxes

Trust. Fiat currency’s previous metal. The key to value inspire trust. 

Fiat currency derives its value from the trust placed in the issuing government or central bank. A physical commodity like gold or silver does not back these currencies. Instead, they rely on the issuing authority’s stability and the users’ confidence. Fiat currencies issued by government decree are trusted thanks to their history of being perceived as valuable because they are backed by governments and issued by central banks. If people were to lose their trust in even one of the factors that establish this trust, value is bound to decrease and suffer debasement.

“In the case of the Roman Empire, the debasement produced annual inflation of around 1,000%.”

Governments usually enact debasement to fund their endeavors at the cost of their citizens. Debasement is an alternative to direct taxation and is less obvious to most citizens. For these reasons, governments from the Roman Empire to the United States have debased their currency. When a currency is debased and therefore loses value, sooner or later, the citizenry catches on and begins demanding higher prices for the goods they sell or more wages for their work, resulting in inflation. Debase: To reduce something’s value; for coinage, to reduce the amount of precious metal in coins but keep the face value constant. The value of the Roman denarius was gradually decreased over time as the Roman government altered both the size and the silver content of the coin. Inflation: A general, sustained upward movement of prices for goods and services in an economy.

Who kept the bullion?

The Great Debasement (1544–1551) was a currency debasement policy introduced in 1544 England under the order of Henry VIII which saw the amount of precious metal in gold and silver coins reduced and in some cases replaced entirely with cheaper base metals such as copper. Overspending by Henry VIII to pay for his lavish lifestyle and to fund foreign wars with France and Scotland are cited as reasons for the policy’s introduction. The main aim of the policy was to increase revenue for the Crown at the cost of taxpayers through savings in currency production with less bullion being required to mint new coins. During debasement gold standards dropped from the previous standard of 23 karat to as low as 20 karat while silver was reduced from 92.5% sterling silver to just 25%. Revoked in 1551 by Edward VI, the policy’s economic effects continued for many years until 1560 when all debased currency was removed from circulation.

After Henry VIII’s death in 1547, nine-year-old Edward VI was crowned king. The debasement policy continued under Edward; however, in 1548 an attempt was made to improve fineness by increasing gold fineness to 22 karat (a standard that became known as crown gold), at the cost of reducing coin size. Silver content, by contrast, reached a new low of just 25% in 1551. The debasement policy was officially revoked in October 1551, and silver fineness was returned to the pre-debasement standard of 92.5% fine silver.


Today, most currencies are fiat currencies and are not based on a precious metal. So, debasement only requires that the government print more money, or since so much money exists only in digital accounts, create more electronically. Quantitative easing is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary policy that came into wide application after the financial crisis of 2007-2008. 

Example of Fiat Money Gone Wrong: Hyperinflation

The African nation of Zimbabwe provided an example of the worst-case scenario in the early 2000s. In response to serious economic problems, the country’s central bank began to print money at a staggering pace, resulting in hyperinflation. Experts suggest the currency lost 99.9% of its value during this time. Prices rose rapidly, and consumers were forced to carry bags of money just to purchase basic staples. At the height of the crisis, the Zimbabwe government was forced to issue a 100-trillion Zimbabwean dollar note. Eventually, foreign currencies were used more widely than the Zimbabwean dollar.6

In contrast to commodity-based money like gold coins or paper bills redeemable for precious metals, fiat money is backed entirely by the full faith and trust in the government that issued it. One reason this has merit is that governments demand that you pay taxes in the fiat money it issues. Since everybody needs to pay taxes, or else face stiff penalties or prison, people will accept it in exchange (this is known as Chartalism). Other theories of money, such as the credit theory, suggest that since all money is a credit-debt relation, it does not matter if money is backed by anything to maintain value.

6 Ways to Hedge Against Inflation or Debasement

  1. Move Your Money into a High-Yield Savings Account. If you have your money stashed in a checking, basic savings account, or worse, at home, inflation, a consequence of debasement, erodes the value of money over time.
  2. Buy Treasury Bonds.
  3. Invest in the Stock Market.
  4. Diversify Your Portfolio Across Sectors and Economies.
  5. Home Improvements.
  6. Explore Alternative Local Tangible Investments, Land, Rental Property, Warehouses.

What Is Chartalism?

Chartalism is a monetary theory that defines money as a creation of the government that derives its value from its status as legal tender. It argues that money is valuable in use because governments require that you pay taxes on that money.

A Fiction Short Story Not Intended As Advice. Consult A Financial Profesional For Guidance. This is Fiction.

WE&P by: EZorrillaMc.