No Debasement of US Currency

danwild6 · Apr 7, 2010

So WI the at the Constitutional Convention the level of precious metals in US coinage was set so that debasement of American currency wasn't possible(by other than Constitutional Amendment)?

http://en.wikipedia.org/wiki/Us_dollar#Debasement_of_the_United_States_dollar

Nicole · Apr 7, 2010

That Wikipedia article makes no sense... "By comparing the current market value of the silver in a Flowing Hair Dollar ($13.14) to the market value of the metals in a Sacagawea Dollar ($0.06) we can conclude that the United States dollar has lost about 99.6 percent of its market value. This kind of loss in value is known as debasement.", but then the $0.06 value comes from modern dollars that set $1.00 = $1.00, so yeah...

But anyway, so this is basically a constitutionally enforced gold standard? I would suppose at some point it would be amended away, to be honest...

danwild6 · Apr 7, 2010

I guess you could say that its a metal standard of sorts(silver in this case).

NomadicSky · Apr 7, 2010

I know the gold standard may not be as practical but it sure made for some awesome currency.

Dathi THorfinnsson · Apr 7, 2010

Gresham's Law would say that you then never see any coin. Continental paper was "not worth a Continental", and they didn't have enough bullion to issue that much coin. If coin couldn't be debased, paper could (and was) and no one would ever accept par value for coin. Ultimately it would impede the foundations of a solid currency, as wonky paper money would have to be used.

Jaded_Railman · Apr 7, 2010

Dathi THorfinnsson said:
Gresham's Law would say that you then never see any coin. Continental paper was "not worth a Continental", and they didn't have enough bullion to issue that much coin. If coin couldn't be debased, paper could (and was) and no one would ever accept par value for coin. Ultimately it would impede the foundations of a solid currency, as wonky paper money would have to be used.

I think it's more likely that people would turn against paper money. After all, Gresham's Law only holds in a situation of legal tender, and Continentals were not legal tender.

Dathi THorfinnsson · Apr 8, 2010

Jaded_Railman said:
I think it's more likely that people would turn against paper money. After all, Gresham's Law only holds in a situation of legal tender, and Continentals were not legal tender.

???But the US doesn't HAVE enough bullion to handle all transaction in bullion.

Jaded_Railman · Apr 8, 2010

Dathi THorfinnsson said:
???But the US doesn't HAVE enough bullion to handle all transaction in bullion.

The economy will suffer during the course of the French Wars across the sea, but then again, the majority of Americans at this time were subsistence farmers or their hired hands. That's not as huge a problem as it would be today.

Once the European war ends and export markets pick up, gold and silver will start flowing into the US and building up as people save.

Some more interesting problems remain in the form of the debt. Since there's very little cash around to be paid in taxes, the bond markets in the big cities will be pretty much the source of public funding. I imagine smuggling amongst the surviving New World colonies will pick up drastically as American merchants try to dodge around British blockades in South America and the Caribbean.