What Makes Coin Currency Valuable?

What Makes Coin Currency Valuable?

The value of coins is determined primarily by their raw metal content. Most of the money in circulation today, however, is not pure precious metal, but rather a paper denomination backed by the promise of a certain amount of physical metal (see representative currency). This type of modern money retains its value primarily for one of two reasons. Either the coin or note can be redeemed for a fixed amount of the real commodity underlying it (as in gold certificates), or, as with the dollar, it is redeemable for some combination of its own denomination and the physical metal backing it.

Until recently, copper, nickel, and zinc were all cheaper than the amount of precious metal that was required to make a particular coin. This meant that as the price of these metals rose, a coin’s intrinsic value declined while its face value remained unchanged. For example, a 1982-dated silver one-cent piece contained only about two cents worth of silver, and therefore was only worth about one cent. As the price of these metals increased, the one-cent coin became more valuable for its copper content than for its face value of $1. This was a classic case of the coin becoming more “debased” (replaced with base metal) to accommodate inflation, and is a major reason why many people avoid holding precious metals for investment purposes.

Precious metal-based coins were useful as convenient, portable expressions of high intrinsic value. But they also induced manipulative practices, such as clipping (cutting off small amounts of metal from the edges), which reduced their circulating value to less than their bullion value. This was a common practice in Tudor England and gave rise to the phrase Gresham’s law. To counter this, monarchs would periodically recall circulating coins and pay only the bullion value of the precious metal, and then remint them. This process, known as recoinage, was a costly and time-consuming undertaking.

Coins in circulation today are typically more heavily debased than their predecessors. A substantial portion of the value of most coins is actually created by the minting and printing processes, which are subject to a wide range of errors. Many of these errors are minor, and can be corrected in post-production processing. However, in some cases errors can result in substantial damage to a coin’s metal or plastic surface.

Other important factors in the overall value of a coin include its design and its historical significance. A coin’s design is usually chosen to convey a particular image or message to the public, and it can have significant influence on its popularity and value. In addition, the coin’s size and weight are important factors in its practical use. If a coin is too heavy for normal use, it may be difficult to carry and store; and if it is too light, it will quickly lose its value due to wear and tear, and it will not be accepted by merchants. Similarly, a coin that is too thin and fragile will be easily broken or lost in daily use.