The definition of coins

A coin is a piece of hard material, traditionally metal and usually in the shape of a disc, which is used as a form of money. Traditionally the value of a coin comes from the intrinsic value of the component metal, but in modern times most coins are made of a base metal and their value comes strictly from their status as fiat money. To distinguish between these two types of coins, as well as from other forms of tokens which have been used as money, monetary scholars have defined there to be three criteria which must be met for an object to be a "true coin". These criteria are:

1. It must be made of a valuable material, and trade for close to the intrinsic value of that material
2. It must be of a standardized weight and purity
3. It must be marked to identify the authority that guarantees the content

The origins of currency

Ancient Babylonians negotiated commercial transactions using gold and silver as a means of exchange as far back as 2000 bc, but the metals were not cast in a form suitable for easy circulation. Lack of standardization meant the weight and purity of the metal had to be tested every time a piece changed hands. Between 620 and 600 bc, the people of Lydia in Asia Minor came upon the idea of shaping electrum, a natural alloy of gold and silver, into bean-shaped lumps of fixed weight and purity and stamping them with official symbols. These early coins soon became popular because of the way they facilitated trade. By 550 bc the practice of striking coins was established in all of the primary trading cities throughout the known world.

The first major improvement in coinage was to phase out the use of electrum. Because it is an unrefined alloy, electrum's ratio of gold to silver can vary considerably. To achieve a higher degree of consistency, coin makers realized they would have to separate the gold from the silver and produce coins primarily of gold, primarily of silver, or of a controlled mixture of the two. Despite its unpopularity, natural electrum was still used sporadically into the Middle Ages.

Over the centuries, coin designs varied considerably in beauty and complexity. The first coins had a crude design on one side and nothing more than a simple punch mark on the other. Within a few hundred years, coins of great artistic beauty were being struck in Greece and then in Rome. As the Roman Empire declined in the 3rd and 4th centuries, so did the quality of its coins. In the Early Middle Ages, most coins struck throughout the Western world were crude and ugly. But by the 15th century, Europe had begun to produce beautiful coins and medals of outstanding workmanship and artistic design.

Coinage metals

Coins are made of metal partly for historical reasons, but the ancients had good reasons for making their coins of metal:

• Metals are valuable. Typically coins of higher value are made of metal of higher value
• Metals are durable. Unlike stone, they won't shatter; unlike wood, they don't burn easily and are hard to break
• Metals are easy and cheap to form and stamp. They can be melted and recast; they can be stamped with the king's (or queen's) head and anything else you care to put on them. In this way, it becomes easier to distinguish real currency from counterfeits

Metal has another value these days: coin-operated vending machines need metal coins so they can tell real coins from counterfeits by the detailed electromagnetic properties of the coin. Most modern coins are being made of metals other than silver or gold, such as Cupro-nickel (around 80:20, silver in colour), nickel-brass (copper 75%, nickel 5% and zinc 20%, gold in colour), manganese-brass (copper, zinc manganese and nickel), bronze, or simple plated steel.

Metal is by no means the only thing we could use. Stone and probably wood have been used for currency in various places and times; and with the invention of cheap printing by the Chinese, paper money became possible and soon appeared. But paper money, which like stone and wood has little or no intrinsic value, can only function in a stable economy, while coins (made of metal which is valuable in itself) can function in any economy. Nobody buries bags full of paper money in the back yard, but people have done that with coins throughout history.

Currency debasement

Throughout history governments have been tempted to create more coinage than their supply of precious metals would allow. By replacing some fraction of a coin's precious metal content with a base metal, a government reduces the intrinsic value of the coins (thereby "debasing" their money) and can produce more coins then they could otherwise. By doing so, some rulers compromised the integrity of the circulating coinage, issuing debased coins as a way to inflict a hidden tax on their subjects. Henry VIII, the king of England from 1509 to 1547, was often guilty of this practice. He caused great harm to his nation's economy by reducing the purity of English gold and silver coins. Debasement of currency almost always leads to inflation unless price controls are also instituted by the governing authorities.

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