Recoinage

Recoinage is the process by which a government or mint calls in the coins already in circulation, melts or retires them, and issues new coins in their place, usually to a new or restored standard of weight, fineness or design. It is used to repair a coinage damaged by debasement, clipping, wear or forgery, or to switch to a new monetary system.

Recoinage is the repair job that often follows currency debasement: one lowers the metal in the coin, the other restores it or resets the standard. It is related to, but narrower than, a currency reform, which may also replace notes and redenominate prices. In English history the best-known cases are Elizabeth I's recoinage of 1560 to 1561, which undid the Great Debasement, and the Great Recoinage of 1696.

Think of a set of measuring cups in a busy kitchen. Over the years some get dented, some have been shaved down, and a few are cheap copies, so a "cup" of flour no longer means the same thing from one cook to the next. Eventually the head chef collects every cup, throws out the bad ones and hands out a fresh, identical set. Cooking stops for a while and some cooks lose out, but afterwards a cup is a cup again.

A recoinage does the same with money. Old, worn or tampered coins are gathered in and replaced with new ones that all carry the right amount of metal or the same agreed design. The hard questions are who pays for the missing metal, and what standard the new coins should follow.

Most recoinages follow a similar sequence:

1. The authorities announce a new standard and a date after which the old coins will stop being accepted at face value.
2. Holders bring old coins to the mint, to tax collectors or to banks, where they are exchanged by face value, by weight or at a fixed discount.
3. The old coins are melted and refined, and the metal is struck into new coins, often at extra temporary mints.
4. Once the deadline passes, the old pieces lose their legal tender status and survive only as bullion or collectors' items.

The central choice is who absorbs the loss on underweight coins. If they are taken at face value, the state pays the difference. If they are taken by weight, the holder pays. Either way, there is often a short shortage of cash while old coins are out of circulation and new ones are not yet issued.

When Elizabeth came to the throne in 1558, England was still using the base silver coins produced during the Great Debasement of 1544 to 1551. On the advice of William Cecil and the financier Sir Thomas Gresham, a proclamation in 1560 reduced the official value of the base coins, and the government then bought them in, refined the silver and reissued it as coin at the old sterling standard of 92.5% fine. The operation was completed in 1561 and is estimated to have left the Crown a profit of around £50,000.

The same period saw an early experiment with machine-struck, or milled, coins by the French moneyer Eloy Mestrelle, although hand-hammered coins remained the norm for another century. With every coin good again, Gresham's law had no bad money left to work with.

By the 1690s, English silver coins were again in poor shape. Hand-struck pieces were widely clipped, forgery was common, and silver was worth more as bullion abroad than as coin at home. Parliament passed an act in January 1696 to call in the old silver and recoin it.

The key policy debate was over the standard. William Lowndes, Secretary to the Treasury, argued for reducing the silver content of the new coins by about a fifth, a de facto devaluation. The philosopher John Locke argued that the pound must keep its old silver weight, because changing it would break faith with creditors. Locke's view prevailed, and the new coins kept the Elizabethan standard.

• Funding. Clipped coins were accepted at face value for taxes for a limited period, and the loss was met partly by a new tax on windows.
• Production. Branch mints were opened in Bristol, Chester, Exeter, Norwich and York to speed the work. Around £6.8 million of silver coin was struck between 1696 and 1699.
• Newton. Isaac Newton became Warden of the Royal Mint in 1696 and Master in 1699, and pursued forgers vigorously.

The short-term result was a severe shortage of coin and hardship in 1696. In the longer run, because silver stayed undervalued at the mint, it kept leaving the country, and England drifted towards gold. That drift ended in the formal gold standard and a separate recoinage of silver in 1816. It also showed the problem of keeping two metals at a fixed ratio, which is the central difficulty of bimetallism.

Modern coins are tokens whose metal is worth less than their face value, the gap being seigniorage, so a recoinage is about design, security and the monetary unit rather than metal content. Examples include the United Kingdom's decimal coins, introduced on 15 February 1971, and the replacement of the round pound coin by a 12-sided coin in 2017; the round pound ceased to be legal tender on 15 October 2017. The introduction of euro coins in 2002, which retired the coins of national currencies such as the French franc and the Deutsche Mark, was the largest recoinage in history by number of countries.

• Royal Mint Museum
• Newton and the Mint (University of Oxford): The Great Recoinage