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What Is Monetary Debasement? Examples, Effects and Solutions

Published

1 year ago

October 27, 2023

Monetary Debasement

Debasement refers to the action or process of reducing the quality or value of something. In relation to money, it 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, thereby lowering the nominal value of each unit.

Understanding Debasement

Before paper money, currency consisted of coins made of precious metals like gold and silver. 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.

Precious metals are no longer used for daily money exchanges and have been largely replaced by paper money, which goes through a process of debasement when the money supply increases. 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 types of 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.

Sweating involves shaking coins vigorously in a bag until the edges of the coins come off and lay at the bottom of the bag. They were then collected to be used in the making of other coins.

Clipping would involve “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.

Plugging was a way of punching a hole out of the coin’s middle area with the rest of the coin hammered together to close the gap. It could also be sawn in half with a plug of metal extracted from the interior. The two halves would be fused again after filling the hole with a cheaper metal.

Modern-day methods

Money supply increase is the modern method used by governments to debase the currency. By printing more money, governments get more funds to spend but it results in inflation for its citizens. Currency can be debased by increasing the money supply, lowering interest rates or implementing other measures that encourage inflation; they’re all “good” ways of reducing the value of a currency.

Why is Money Debased?

Governments debase their currency so that they can spend without raising further taxes. Debasing money to fund wars was an effective way of increasing the money supply to engage in expensive conflicts without affecting people’s finances — or so it is believed.

Whether by traditional debasement or modern money printing, money supply increases have short-sighted benefits in boosting the economy. But in the long term it leads to inflation and financial crises, the effects of which are felt most acutely by those in society who do not own hard assets that might counter the loss in the currency’s value.

Currency debasement could also occur by malicious actors who introduce counterfeit coins to an economy, but the consequence of being caught can in some countries lead to a death sentence.

“Inflation is legal counterfeiting, Counterfeiting is illegal inflation.” – Robert Breedlove

Governments can take some measures to mitigate risks associated with money debasement and prevent unstable and weak economies, for example by controlling the money supply and interest rates within a specific range, managing spending and avoiding excessive borrowing.

Any economic reform that promotes productivity and attracts foreign investments helps maintain confidence in the currency and prevent money debasement.

Real-World Examples

The Roman Empire

The first example of currency debasement dates back to the Roman Empire under emperor Nero around 60 A.D. Nero reduced the silver content in the denarius coins from 100% to 90% during his tenure.

Emperor Vespasian and his son Titus had enormous expenditures via post-civil war reconstruction projects like the building of the Colosseum, compensation to the victims of the Vesuvius eruption and the Great Fire of Rome in 64 A.D. The chosen means to survive the financial crisis was to reduce the silver content of the “denarius” from 94% to 90%.

Titus’ brother and successor, Domitian, saw enough value in “hard money” and the stability of a credible money supply that he increased the silver content of the denarius back to 98% — a decision he had to revert when another war broke out, and inflation was looming again across the empire.

This process gradually continued to the point that the silver content measured just 5% in the following centuries. The Empire began to experience severe financial crises and inflation as the money continued to be devalued — particularly during the 3rd century A.D., which is sometimes referred to as the “Crisis of the Third Century.” During this period, spanning from about A.D. 235 to A.D. 284, Romans demanded higher wages and an increase in the price of the goods they were selling to face currency depreciation. The era was marked by political instability, external pressures from barbarian invasions and internal issues such as economic decline and plague.

It was only when Emperor Diocletian and later Constantine took various measures, including introducing new coinage and implementing price controls, that the Roman economy began to stabilize. However, these events highlighted the vulnerabilities of the once-mighty Roman economic system.

Ottoman Empire

During the Ottoman Empire, the Ottoman official monetary unit, the akçe, was a silver coin that went through consistent debasement from 0.85 grams contained in a coin in the 15th century down to 0.048 grams in the 19th century. The measure to lower the intrinsic value of the coinage was taken to make more coins and increase the money supply. New currencies, the kuruş in 1688 and then the lira in 1844, gradually replaced the original official akçe due to its continuous debasement.

Henry VIII

Under Henry VIII, England needed more money, so his chancellor started to debase the coins using cheaper metals like copper in the mix to make more coins for a more affordable cost. At the end of his reign, the silver content of the coins went down from 92.5% to only 25% as a way to make more money and fund the heavy military expenses the current European war was demanding.

Weimar Republic

During the Weimar Republic of the 1920s, the German government met its war and post-war financial obligations by printing more money. The measure reduced the mark’s value from around eight marks per dollar to 184. By 1922, the mark had depreciated to 7,350, eventually collapsing in a painful hyperinflation when it reached 4.2 trillion marks per USD.

History offers us poignant reminders of the perils of monetary expansion. These once-powerful empires all serve as cautionary tales for the modern fiat system. As these empires expanded their money supply, devaluing their currencies, they were, in many ways, like the proverbial lobster in boiling water. The temperature — or in this case, the rate of monetary debasement — increased so gradually that they failed to recognize the impending danger until it was too late. Just as a lobster doesn’t appear to realize it’s being boiled alive if the water’s temperature rises slowly, these empires didn’t grasp the full extent of their economic vulnerabilities until their systems became untenable.

The gradual erosion of their monetary value was not just an economic issue; it was a symptom of deeper systemic problems, signaling the waning strength of once-mighty empires.

Debasement in the modern era

The dissolution of the Bretton Woods system in the 1970s marked a pivotal moment in global economic history. Established in the mid-20th century, the Bretton Woods system had loosely tethered major world currencies to the U.S. dollar, which itself was backed by gold, ensuring a degree of economic stability and predictability.

However, its dissolution effectively untethered money from its golden roots. This shift granted central bankers and politicians greater flexibility and discretion in monetary policy, allowing for more aggressive interventions in economies. While this newfound freedom offered tools to address short-term economic challenges, it also opened the door to misuse and a gradual weakening of the economy.

In the wake of this monumental change, the US has experienced significant alterations in its monetary policy and money supply. By 2023, the monetary base had surged to 5.6 trillion dollars, representing an approximate 69-fold growth from its level of 81.2 billion dollars in 1971.

As we reflect on the modern era and the significant changes in U.S. monetary policy, it’s crucial to heed these historical lessons. Continuous debasement and unchecked monetary expansion can only go on for so long before the system reaches a breaking point.

Effects of Debasement

Currency debasement can have several significant effects on an economy, varying in magnitude depending on the extent of debasement and the underlying economic conditions.

Here are some of the most impactful consequences that currency debasement can generate over the long term.

Higher inflation rates are the most immediate and impactful effects of currency debasement. As the currency’s value decreases, it takes more units to purchase the same goods and services, eroding the purchasing power of money.Central banks may respond to currency debasement and rising inflation by increasing interest rates, which can impact borrowing costs, business investments and consumer spending patterns.Currency debasement can deteriorate the value of savings held in the domestic currency. This is particularly detrimental to individuals with fixed-income assets, such as retirees who rely on pensions or interest income.A debased currency can make imports more expensive, potentially leading to higher costs for businesses and consumers reliant on foreign goods. However, it may also make exports more competitive internationally, as foreign buyers can purchase domestic goods at a lower price.Continuous currency debasement can undermine public confidence in the domestic currency and the government’s ability to manage the economy effectively. This loss of trust may further exacerbate economic instability and even hyperinflation.

Solution to Debasement

The solution to debasement lies in the reintroduction of sound money — money whose supply cannot be easily manipulated. While many nostalgically yearn for a return to the gold standard, which was arguably superior to contemporary systems, it is not the ultimate solution. The reason lies in the centralization of gold by central banks. Should we revert to a gold standard, history would likely repeat itself, leading to confiscation and the debasement of currencies once again. Put simply, if a currency can be debased, it will be debased.

Bitcoin offers a permanent solution to this issue. Its supply is capped at 21 million, a number that is hard-coded and safeguarded by proof-of-work mining and a decentralized network of nodes. Thanks to its decentralized nature, no single entity or government can control Bitcoin’s issuance or governance. Furthermore, its inherent scarcity makes it resilient to the inflationary pressures that are typically seen with traditional fiat currencies.

In times of economic uncertainty, or when central banks engage in extensive money printing, investors often turn to assets like gold and bitcoin for their store-of-value properties. As time progresses, there’s potential for people to recognize bitcoin not just as a store of value, but as the next evolution of money.

Debasement is the action or process of reducing the quality or value of something, particularly in relation to money.

Crypto News

David Bailey Forecasts $1M Bitcoin Price During Trump Presidency

Published

5 hours ago

January 21, 2025

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In an in-depth discussion on the Hell Money Podcast, David Bailey, CEO of BTC Inc., shared insights into Bitcoin’s transformative potential, its geopolitical implications, and its role as a cornerstone of a new global economic framework.

“I see this happening so much faster than anyone can appreciate. Within 10 years, Bitcoin will become the reserve asset of the world.”

00:00 Intro
07:15 Bitcoin soft forks
11:00 Bitcoin vs. Crypto in US policy
19:20 How much political power does Bitcoin have?
23:50 Bitcoiners are politically homeless
26:20 Strategic Bitcoin Reserve
29:00 Bitcoin development and ossification
32:00 Separation of money and state
33:40 Raise your time preference
35:20 SBR as a way out of USD global reserve status
41:00 Will they eventually fight us?
43:00 Incentives as a political movement
46:30 What happens next?
49:15 Bitcoin Vegas & Inscribing Vegas 2025

The Political and Economic Power of Bitcoin

Bitcoin has evolved into a significant political and financial instrument. Its decentralized nature, immutable ledger, and finite supply make it an attractive alternative to traditional fiat currencies, particularly during periods of economic uncertainty. Bailey emphasizes that Bitcoin is no longer merely a speculative asset but has become a political force capable of influencing policy and elections.

“Within the next four years, Bitcoin will be the most widely held asset in the world. This isn’t a special one-off moment—it’s the changing of the guard of the world order.”

As Bitcoin gains adoption among individual investors, corporations, and governments, its ability to sway decisions in both the public and private sectors continues to grow. This makes Bitcoin a strategic tool for economic stability and a hedge against systemic risks such as inflation, currency devaluation, and geopolitical instability. Understanding this evolution is crucial for investors looking to align their strategies with Bitcoin’s increasing influence in global finance.

Strategic Bitcoin Reserve: A Game-Changer for Economies

Bailey highlights the concept of a Strategic Bitcoin Reserve (SBR) as a key driver in Bitcoin’s path to becoming a global reserve asset. If a major economy, such as the United States, were to adopt an SBR, it could trigger a domino effect, with other nations racing to establish their own reserves. This global competition could significantly accelerate Bitcoin’s transition from a speculative asset to a fundamental part of national and international financial strategies.

“If America gets an SBR, China gets an SBR. If America and China have an SBR, within 12 months every country on the planet will have an SBR. The game theory effects of us kicking this off, in my opinion, are like the biggest catalyst possible for hyperbitcoinization.”

An SBR offers governments the ability to hedge against inflation, protect their economies from devaluation, and diversify their reserves. Unlike gold, Bitcoin is easily transferable, highly divisible, and operates transparently on a decentralized network. For investors, national adoption of Bitcoin reserves signals long-term stability and growth potential, reinforcing the case for allocating a portion of portfolios to Bitcoin and related assets.

Orange-Pilling Trump: A Strategic Advocacy Moment

One of the most intriguing aspects of David Bailey’s efforts in advancing Bitcoin’s adoption was his strategic engagement with former President Donald Trump. Bailey discussed how Bitcoin advocates pitched Bitcoin to Trump as more than just a digital currency, emphasizing its economic and political advantages. By framing Bitcoin as a tool for strengthening American competitiveness and financial independence, Bailey and his team successfully captured Trump’s interest.

“We are within a couple of years of being the most powerful political faction in the United States. And not just the United States—there are bitcoiners embedded in power structures across the planet.”

Bailey’s team leveraged Bitcoin mining as a key entry point in their discussions, highlighting the economic benefits of Bitcoin mining operations in the United States, such as job creation and energy innovation. This approach aligned Bitcoin with Trump’s “America First” policies, presenting it as a way to bolster the nation’s energy independence and economic strength. These discussions laid the groundwork for a broader understanding of Bitcoin’s strategic value at the highest levels of government.

Governance and Innovation in Bitcoin

While Bitcoin’s decentralized nature is its greatest strength, it also presents challenges in governance and technological adaptability. Bailey underscores the importance of continuous innovation, particularly through mechanisms like soft forks, to ensure that Bitcoin remains scalable, secure, and competitive. Without these updates, the risk of ossification—where the network becomes resistant to necessary changes—could hinder Bitcoin’s evolution.

“Bitcoin gives governments a really elegant way out of the money-printing trap. They can print money, buy Bitcoin, and as the price of Bitcoin goes up, they’re still solvent. Later, they can peg their currency to Bitcoin.”

The Bitcoin community must navigate these governance complexities with a focus on collaboration and forward-looking solutions.

Hyperbitcoinization and the $1 Million Price Target

Bailey predicts that Bitcoin could reach a value of $1 million per coin within the next four years, driven by its growing adoption and the systemic challenges faced by traditional financial systems. This projection signifies more than just a price milestone—it represents a fundamental shift in the global economic order. Hyperbitcoinization, as Bailey describes it, involves Bitcoin becoming the default reserve currency, complementing or even replacing traditional fiat currencies.

“When we get to a million bucks, which I think can happen over the next four years—in my personal opinion, I think it’s possible—the Federal Reserve is, like, going to be completely impotent.”

This transition would have profound implications. Bitcoin’s decentralized nature would democratize access to financial systems, reduce reliance on central authorities, and promote greater economic inclusion. For investors, the journey toward hyperbitcoinization offers unparalleled opportunities as Bitcoin’s dual role as a store of value and medium of exchange becomes increasingly evident.

Interview Key Takeaways

Political Leverage: Bitcoin’s influence on policymaking and elections underscores its role as a hedge against political and economic risks.
National Adoption Trends: The adoption of SBRs by major economies could catalyze global Bitcoin adoption, creating a favorable environment for long-term investment.
Technological Resilience: Continuous innovation, including scalability solutions like the Lightning Network, is essential for sustaining Bitcoin’s growth and usability.
Portfolio Diversification: Bitcoin’s uncorrelated performance relative to traditional assets makes it an attractive addition to diversified investment strategies.
Economic Stability: In an era of rising inflation and monetary instability, Bitcoin provides a transparent, secure, and decentralized alternative to fiat currencies.

The Future of Bitcoin in the Global Economy

David Bailey’s insights provide a compelling vision of Bitcoin’s transformative potential, offering investors a clear opportunity to align their strategies with a rapidly evolving financial landscape. By understanding and leveraging Bitcoin’s role in fostering economic resilience and innovation, investors can position themselves to benefit from its adoption as a global reserve asset and a tool for long-term portfolio growth. As the world confronts challenges such as inflation, currency instability, and geopolitical uncertainty, Bitcoin emerges as a beacon of financial stability and innovation. For investors, the implications of Bitcoin’s growth extend far beyond speculative returns—it represents a strategic opportunity to participate in the evolution of the global financial system.

“It’s like, well, once that happens, then it’s not $1 million or $10 million. It’s like, it is the reserve asset of the world.”

In the coming decade, Bitcoin’s role as a stabilizing force and driver of innovation will become increasingly evident. Its seamless integration into national and corporate strategies, combined with its adaptability, positions Bitcoin as a cornerstone of future financial systems. Bailey’s vision challenges investors to consider the profound implications of a decentralized monetary system that prioritizes transparency, inclusion, and resilience.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.

David Bailey Forecasts $1M Bitcoin Price During Trump Presidency David Bailey, CEO of BTC Inc., shares bold predictions for Bitcoin’s future, including its potential to reach $1 million during the Trump presidency. This article delves into the political, economic, and technological forces shaping Bitcoin’s role as a global reserve asset and highlights key strategies for investors to align with its transformative potential.

Crypto News

Trump Did Not Free Ross On Day One Because Of Course He Didn’t

Published

8 hours ago

January 21, 2025

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I’m not here to say “I told you so.”

In my Take from October 4, I did write that Donald Trump does not give a damn about Bitcoin, and in my Take from November 5 I wrote he just wants in on the crypto scam. But I didn’t mention Ross Ulbricht in either of these, largely because even I expected Trump to at least follow through on his promise to free Ross. It’s an easy promise to keep, without any real downside for Trump; after more than ten years in prison Ulbricht deserves to be free.

I didn’t really expect Trump to free Ross on day one of his presidency, however. Inauguration day is quite a busy day for a new president, I’m sure.

Having said that, it is what Trump himself said he would do. Of course Trump also said that he would have resolved the war in Ukraine by now — apparently they’re still fighting.

Trump is a bullshitter. He will just say whatever he wants or whatever people want to hear, with no regard for the truth. He may in fact well have the most recorded lies out of any human being in history: Fact checkers from The Washington Post have for example counted over 30,000 false or misleading claims during his first term as president alone.

Still, it is also true that Trump had a busy day yesterday. He signed 26 executive orders (a record amount for a first day president), and pardoned over 1500 of his supporters; those who stormed the US Capitol Building on January 6th four years ago. Yes, that means the QAnon Shaman walks free before Ross Ulbricht (H/T Trey Walsh)… but let’s just hope that Elon Musk is proven right in the next few days, and Ross will be freed too.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Trump Did Not Free Ross On Day One Because Of Course He Didn’t Donald Trump broke his campaign promise to free Ross Ulbricht on day one of his presidency… let’s hope he follows through in the next couple of days after all.

Crypto News

Advanced Mathematical Projections for the Bitcoin Bull Cycle Peak

Published

8 hours ago

January 21, 2025

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The current Bitcoin bull market presents a compelling opportunity for investors seeking precise, data-driven forecasts regarding the timing and magnitude of the next price peak. In a rigorous analysis presented by Bitcoin Magazine Pro, lead analyst Matt Crosby applies a sophisticated blend of historical data, moving average analysis, and statistical modeling to predict the forthcoming Bitcoin bull cycle peak.

Crosby’s findings project October 19, 2025, as a pivotal date, with Bitcoin reaching a median price of $200,000 and the potential for peaks extending to $230,000 when accounting for statistical outliers.

Access the Comprehensive Analysis

For an in-depth understanding of the mathematical methodologies and the complete analysis, refer to the full video presentation available on Bitcoin Magazine Pro’s platform.

The Pi Cycle Top Indicator: An Analytical Benchmark

Central to Crosby’s predictive framework is the Pi Cycle Top Indicator, renowned for its precision in identifying Bitcoin’s cyclical price peaks within narrow temporal margins during past bull markets. The indicator functions by employing two critical moving averages:

111-Day Moving Average (111DMA): Reflecting shorter-term price dynamics.
350-Day Moving Average (350DMA) multiplied by two: Offering a broader historical perspective.

The nomenclature “Pi” arises from the ratio of these averages, approximating 3.142. Historically, the intersection of these moving averages has corresponded with Bitcoin’s market cycle peaks:

2017: The indicator predicted the peak with a one-day margin of error.
2021: Accurately identified the exact peak date.

Methodological Precision: From Data to Predictions

Crosby extends his analysis through Monte Carlo simulations, a robust statistical technique that models numerous potential trajectories for Bitcoin’s price evolution. Key facets of this approach include:

Quantifying median daily returns and associated volatility over the preceding 791 days.
Running more than 1,000 simulations to map a spectrum of plausible price paths.
Deriving a median price peak of $200,000, with an average of $230,000 when incorporating extreme data points.

These simulations align with historical patterns, suggesting that the next Bitcoin bull cycle peak will likely occur on October 19, 2025.

Examining Diminishing Returns

To estimate the price range at the projected peak, Crosby evaluates the historical phenomenon of diminishing returns, where each successive cycle exhibits proportionally smaller price increases relative to its moving averages:

2013: Bitcoin’s price exceeded its moving averages by 440%.
2017: This figure decreased to 299%.
2021: The peak was 32% above the moving averages.

Extrapolating this trend and incorporating Monte Carlo simulations yields the following projections:

Median Price Peak: $200,000.
Average Price Peak: $230,000, accounting for statistical variability.

Implications for Investors

Crosby underscores the inherent uncertainties in any predictive model, emphasizing the importance of adapting to evolving market dynamics. Factors such as institutional adoption, macroeconomic trends, and unforeseen events could significantly influence Bitcoin’s trajectory. Nonetheless, this analysis provides a rigorous, data-driven framework to inform investment strategies during the current bull cycle.

Key Insights

Projected Peak Date: October 19, 2025.
Forecasted Price Range: A median of $200,000, with potential peaks averaging $230,000.
Analytical Tools: Pi Cycle Top Indicator and Monte Carlo Simulations, powered by Bitcoin Magazine Pro data.

For ongoing access to live data, advanced analytics, and exclusive content, visit BitcoinMagazinePro.com.

Disclaimer

This article is intended for informational purposes only and does not constitute financial advice. Readers are encouraged to conduct thorough independent research before making investment decisions.

Advanced Mathematical Projections for the Bitcoin Bull Cycle Peak Discover how advanced statistical methods and historical data, including the renowned Pi Cycle Top Indicator and Monte Carlo simulations, are used to project Bitcoin’s next bull cycle peak, with insights into potential price ranges and timing for savvy investors.