An Elizabethan Tale

wealthymatters.comwealthymatters.comQueen Elizabeth I(right)  ruled England in the 16th century.She succeeded her father King  Henry VIII, her half-brother King Edward VI and her half -sister Queen Mary I who ruled before her. Between them, her two predecessors King Henry VIII and King Edward VI  had completely destroyed the Pound by debasing it till there was very little silver left in it. Queen Elizabeth,who was very ambitious for England was hampered by a weak Pound so she sought the help of Sir Thomas Gresham(left),a merchant,to solve the problem.

In the days when coins were made of precious metals,debasement was the  practice where the ruler or the government of the day decided to lower the precious metal content of the coin while keeping its face value unchanged.For example,consider a coin which has a face value of 1Pound. The face value of a coin is referred to as its tale. This coin is made up of a metal (gold or silver) and the metal content of the coin is worth 1Pound as well. The metal content in a coin is referred to as specie.So in this example the tale of the coin is equal to its specie, which is the ideal situation. Now the ruler decides to debase the coin by 20 percent. So he reduces the metal content or the specie value of the coin by 20 percent . But at the same time he maintains the face value of the coin at 1Pound. And thus debases the coin.

In most situations the ruler pocketed the metal (gold or silver) they saved by debasing the coin. The situation in Britain at the start of Elizabeth’s rule was similar and the market that was full of debased coins.She wanted to correct the situation and decided to launch new silver coins where the tale of the coin was equal to its specie – i.e. the face value of the coin was equal to the amount of metal in it.But her financial adviser Gresham thought that there would be a major problem in doing that. He felt that the bad money would drive out the good. This essentially meant that the citizens of the country would hold on to the full metal new coins and try and carry out their transactions through the existing debased coins. They would melt the newer coins for the greater amount of silver in them and sell them for their precious metal content. Hence bad money would drive out the good. This phenomenon came to be known as the Gresham’s law. Gresham decided to solve the problem by exchanging all the old coins for new coins. This would ensure that there would be no old coins in the market and people would move onto using the new coins as money.

About Keerthika Singaravel

2 Responses to An Elizabethan Tale

  1. Trevor says:

    Thank you for sharing this with us. You provided a highly interesting post here.. Well done!

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