Income Sources and Effects of Medieval Emergency Debasements

The paper is about how minting authorities in the Middle Ages could increase seigniorage by undertaking relatively fast debasements (decreasing the silver content) of the coinage. The paper analyses which mechanisms and incentives are created by the authorities for people to hand in bullion and old/foreign coins for re-minting and thereby increase the seigniorage. Two main mechanisms are identified. First, in the early phase of an emergency debasement cycle, there are price-lags between silver price and consumer prices because the latter prices are ‘rigid’. This provides incentives for people to hand in bullion and foreign coins for minting. Second, in the later phase of a debasement cycle, both good and bad coins will circulate simultaneously. If ordinary people cannot see the difference between good (high silver content) and bad (low silver content) coins, experts (such as silversmiths) can collect good coins and hand them in for re-minting and make a profit through arbitrage. I also analyse what happens at the end of a debasement cycle. Theories are supported by empirical data from France and Sweden. Finally, analysis is made of which groups in society are winners and losers from emergency debasements.