Four different problems
Debasement means an issuer reduces the weight or fineness of valuable metal relative to an earlier standard while keeping or changing the denomination. Clipping is private removal of metal from edges. Counterfeiting makes an unauthorised imitation, while wear results from ordinary use.
These phenomena create the same uncertainty about content but have different causes and responsibility. Calling all of them inflation conceals whether the official rule, metal quantity, market price or only one damaged piece changed.
Denomination versus bullion
When a coin is accepted by inscription but its metal has a separate market price, tension arises. Heavier and finer coins may be hoarded, melted or exported while lighter pieces circulate. This mechanism depends on rules requiring different qualities to be accepted at the same nominal rate.
Gresham's law cannot therefore be reduced to the slogan that bad money always drives out good. It requires a legal or contractual rate that undervalues the better coin. Where both trade freely according to metal, they can receive different prices.
- debasement: an official change in content or standard
- clipping: unauthorised removal from an existing coin
- wear: loss of mass through circulation
- counterfeit: an unauthorised imitation
England's crisis and the Great Recoinage of 1696
By the late seventeenth century many English hand-struck silver coins were worn or clipped. The New York Fed reports that by 1695 almost half the silver was missing from circulating coin. Denomination no longer conveyed content credibly and the payment system entered crisis.
The Great Recoinage beginning in 1696 replaced old pieces with machine-struck coins whose regular edges made tampering more visible. The operation was difficult and temporarily worsened the shortage of currency. A better coin did not make transition costless.
What Bitcoin does and does not solve
A valid Bitcoin node rejects a block creating more units than its rules permit. A digital unit cannot be physically clipped and passed at its old denomination. Supply and signature checks are exact and automated.
A user may still hold an unverified custodial claim, a fraudulent token with a similar name or software using altered rules. Bitcoin protects the integrity of its protocol, not the truth of every financial product built around it.