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Currency Debasement




Currency debasement refers to a currency's devaluation, which generally occurs when its backing by- or its strong connection to- (usually) a commodity is either removed or severely affected.

For example: a metallic coin's debasement can occur by the changing of its content. At the beginning of the 20th century there have been lots of gold and silver coins in circulation. But, due to wars and severe economic problems, some governments have either totally eliminated the (expensive) gold coins from the economy or, they changed their content by reducing the amount of gold in them.

Silver coins were treated similarly. For example, World War II-ravaged Hungary produced less silver coins in the 1940's, as opposed to the 1930's. Coins initially made of silver were later made of aluminum.

In case of paper banknotes and actual currencies, we could say that debasement meant and/or means: the loss of backing for the currency, the disconnection between the currency and what gives value to it.
Some consider President Nixon's abolishing of the US dollar's gold standard a currency debasement. The dollar has lost a lot from its value due to the 1971 "Nixon Shock" event, when the direct convertibility between the dollar and the gold was abolished.

Today, the US dollar is empowered by the so-called petrodollar system. Most countries have been using US dollars to pay for the oil they bought from petrol-producing countries. During recent years, some of these buyers and sellers have started avoiding the US currency (for instance, Iran sold oil to India in gold and Venezuela started selling oil to Russia in Rubles and Venezuelan Bolívars).
Eventually, the petrodollar system will end either due to the depletion of petroleum or, due to the ditching of the dollar by so many sellers and buyers or petrol.





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