Wednesday, 25 November 2009

Record debasement of British Pound! : 2009-11-25

Don't worry, these are not British pounds - we are not there (yet)!

Wednesday 25th November 2009 at 16:58.

So the record high in gold in pounds Sterling gives a new record low for the British pound in terms of gold. Let's see just how much our government and bankers have managed to debase the pound over the last century.

Easy to calculate. The present value of the £ compared to its value under the Gold Standard is the reciprocal of the current bullion price of a gold Sovereign coin which used to be a £1 coin worth £1!

Sovereign gold content = 0.2354 ounces
Present bullion value = 0.2354*706.73 (today's 'PM Fix' London gold price)
= £166.36 in today's 'money'.
It has been debased by a factor of 166 times.

Reciprocal of this (1/x function) = 0.006011 (oh dear).

Conclusion: The pound Sterling is now worth 0.6% of its original value under the gold standard when Sovereigns were issued annually for nearly 100 years between 1817-1914 for use as money before Britain left the Gold Standard.

It has lost 99.4% of its value since then; rather, 99.4% of its value has been taken away.

Let's calculate the new £ in terms of the old 'LSD' money (pounds, shillings and pence) where 20 shillings made £1 and 12 pence ('12d') made a shilling, ie 240d to the pound.

0.06011*240=1.44 d (old pence)

Interestingly, as an aside, in 1797 England issued 'Cartwheel Twopences' struck by the Matthew Boulton steam coin press (when Britain was the major industrial power in the world) and these weighed 2 ounces - almost like being on a gold/silver/copper trimetallic monetary standard, the price of copper being 1d per ounce.

In terms of this, today's pound sterling would be worth 1.44 ounces of copper when it used to be worth nearly 1/4 ounce of gold!

This fits neatly with the idea (the fact) that, when a government takes precious metals out of the coinage and replaces them with base metals, it allows them to debase the currency over time until the coins actually reach the intrinsic market value of the base metals they contain! The pound is now indeed a base metal coin, as are the dollar and the euro (and all the rest). Well, base metals dollars were produced in year 2000 and anyway, the alternative is a paper dollar, also very cheap to make. Eventually, a stage is reached when even the base metals in the coinage become more valuable than the face value of the coins for the lower value demoninations and have to be :

a) replaced by cheaper metals (copper pennies in Britain replaced by copper-plated steel in 1992 which is magnetic - you can separate these 1992-onwards minted coins using a magnet),
b) shrunk to fit the new shrunken metal value of the currency - (the cupro-nickel (formerly silver!) British coins were shrunk around the same time by about half, presumably for this reason), or
c) discontinued altogether (the smallest demonination English coins such as farthings and halfpennies were sequentially phased out, presumably because they couldn't buy anything or they were too costly to manufacture).

Eventually, under a paper money system, the monetary value of the paper note can be decreased until it is worth as much as the actual paper and ink plus perhaps the processing cost for manufacturing the actual note.

After that one is exhausted, you just add more zeros to the note, until you can hardly fit any more onto it.

Thanks to the wonderful Wikipedia for pictures.

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