coins and coinage

DEFINITION: Coins are durable and portable tokens which function as money. They are usually made of an elemental metal, such as gold or silver, or an alloy.

“Coinage” refers to the act of creating (minting) coins by stamping them from sheets of metal by means of a die. The term may also refer to the totality of coins in circulation, whether within a given area at a given time or in full generality.

ETYMOLOGY: The word “coin” derives, via Middle English and Middle French, from the Latin word cuneus, meaning “wedge.”

The connection between the two concepts is that when the word arose in English in the fourteenth century, coins were stamped by dies that were wedge-shaped.

USAGE: The roots of coinage may be traced back to the mastery of metallurgy by the earliest civilizations. This occurred around 3000 BC in Mesopotamia and around 2500 BC in China.

In Mesopotamia, coins seem to have evolved out of metal ingots used as standard weights. Initially, metal ingots, or bullion, was held primarily as a repository of value. However, there appears to have been a stage in which bullion was used as a means of exchange, as well.

Soon, however, metallic coins were found to be far more convenient as a means of exchange due to their much greater portability.

Gradually, metallic coins came to replace not only bullion, but most earlier forms of money, as well, including cowry shells, natural amber (electrum) and other materials, and hand-crafted beads of many varieties.

By around the turn of first millennium BC, metal coins began to appear over a wide geographical area, eventually stretching from the Mediterranean basin to the Pacific.

Moreover, the archaeological discovery of coins in locations far removed from the places where they were minted attests to the early development of international trade routes across the Eurasian land mass.

Coins are most often disc-shaped. Their two sides are called observe (“heads”) and reverse (“tails).

Coins are almost always stamped with a face value, which is a number that either represents a weight directly or else stands for a position within a numerical system of convertibility of coins of different weights.

 In the latter case, one coin’s weight (and hence value—see below) will be deemed the standard unit and other all coins will have either fractional or integral multiple weights (and values) in relation to the standard coin’s.

Often, the king or other political authority who sponsored the minting of a coin is represented on it, too, either in words or in a drawing.

However, it should be noted that all coins until very recently were made of precious metals, and thus were universally felt to have inherent value.

For this reason, the minting political authority has not traditionally played a decisive role in establishing the value attached to coins. Rather, it is the inherent value of the gold or silver in the coins which played that role.

On the other hand, on some historical occasions and under some political circumstances, some coins might come to be more highly prized than others due to the prestige or the trust adhering to the sponsoring king.

One negative consequence of the historical link between coins and precious metals is that it provided an opening for debasement of the coinage, either by criminals or by the minting political authorities themselves.

Coins are debased by reducing the standard weight of the precious metal contained in the coin by mixing it with a base metal. In this way, a debased coin contains less precious metal, and hence less inherent value, than is claimed by its face value.

Gradually, over the post–World War II period—in 1965, in the US—the coinage of the developed, industrialized countries has ceased to contain precious metals.

This is to say that today coins are a form of “fiat currency” every bit as much as banknotes are.

Fiat currency, of course, is currency with no perceived inherent value, but whose value derives rather entirely from the trust that the populace places in the minting authority.

Thus, a US quarter is worth one-fourth of a $1 bill because the US government says it is, and for no other reason.

It has seemed for going on 60 years now that that is reason enough.

What happens when a political authority that mints fiat coins (and prints paper currency) loses the trust of its populace is something that remains to be seen.