Thursday, May 3, 2012

Currency Debasement - Canada leading the charge

Typically I post one blog article a day around 6pm.  However, I took some time off to study for my CPA.  I thought I would take a break from studying, and write about an article that I found interesting.  One of my favorite places to find news is at coinflation.  I found a recent article that was listed that wrote about the last day of mint for Canadian pennies.  That's right...the penny production has shut down in Winnipeg.  The penny no longer is worth being produced.  Purchasing power...next to nothing.  How do I know?  Well, when I recycle steel I receive about $0.10 per pound.  The penny weighs 2.35 grams.  About 454 grams is equal to one pound.  This is about 193 pennies needed to make you $0.10 at the scrap yard.  That is the power of debasement!


Starting in 2000 Canada changed all coinage from copper, nickel and zinc based to steel.  The penny for example was made out of 94% steel.  Get your magnets out...you can pick them all up!

Currency debasement is when you lower the value of currency.  A coin is debased if the quantity of gold, silver, nickel, or copper is reduced.  Paper money is debased when volume of money printed is larger than demand for the paper.  This can cause monetary-based inflation. 

The great Roman empire debased their currency over many years.  Going from almost pure silver then over time the size of the coin got smaller, and the purity of the coin much less.  People also used to shave the coins.  In the US the dime and quarter have milled edges to prevent people from doing this.  Since the dime and quarter no longer have silver in them...it kind of defeats the purpose.

I think what Canada did is a first, and it will be interesting to see how their economy fairs over the next 10 to 20 years.  Debasing a currency from silver to copper, to steel, to nothing at all!  Why make nickels, dimes, or quarter coins then?  Even better...you could make the coins out of plastic or wood.  I think I'm going to raid my monopoly money.  It would save the government money right?

The whole reason why Canada changed their currency from copper, zinc, and nickel to steel was to save money.  Now they won't even produce the penny?  Debasing currency is good for the government, but bad for the citizens.  Why the citizens of the country are fine with this I'm not quite sure. 

My question is...when the government finds out that this doesn't work either...what's next?

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