Also known as coinage.
This is the specie of a country's money supply. It is the physical currency that is usually produced by the mint. This is a department of the government which is in control of the coin distribution. These are typically made from precious metals.
Coins issued by governments are legal tender and serve as a medium of exchange. This means they can serve as payments on debts and for taxes. It has recently been accompanied by banknotes as part of the money supply.
Problems With Coin Money
While many defend commodity backed money, there were many problems associated with it. They are:
Inconsistent weights due to clipping Lack of standard unit of account Danger posed by thieves - personal safety Insufficient amount due to bullion shortage or underestimating the need by the government
These issues often pushed vendors and merchants into using ledger based money. Business cannot allow currency issues to stand in the way. Through the issuance of credit, merchants were able to keep trading even when there was a shortage of coinage.
One of the problems with coin money became known as Gresham's Law. This is a theory that states bad money will drive out good. It is based upon two factors that were present during coinage periods.
Clipping is the practice of individuals cutting a sliver of the coins off. Since they were made out of precious metals, there was value in addition to the face value of the coin. Even if reduced by a sliver, the weight wasn't a consideration as the face value determined the purchasing power.
When given a choice between remitting a coin with greater metallic value versus one with less, the consumer will pay using the latter coin.
This is one way coinage was debased.
The other way that Gresham's Law was implemented is by the mint itself. Whoever was behind the creation of the currency, alloys were utilized as compared to precious metals. Like with clipping, this pushed more "bad" money onto the market while the "good" money was hoarded.
Once again, the metallic value of the coins meant they would be worth more in the future.
Examples of this are:
If there is nobody in control of the transfer of money, this means that cryptocurrency is taking on similar characteristics to cash. There are a couple factors tied to this concept:
The industry is trying to address this in a couple different ways. The first is through privacy coins. These are designed to make transactions anonymous. Another is through coin mixers which, when utilized, make following the transactions near impossible.
Many feel that stablecoins will end up fulfilling the medium of exchange role. These are cryptocurrencies that are pegged to another asset. The most common is USDC and Tether, which are supposedly backed by $1 worth of cash and US Treasuries. Here we see the reserve providing the value for the coins.
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