demonetization

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demonetization

(dē'mŏn'ətəzā`shən), governmental withdrawal of the monetary quality from particular coinage or precious metal. By demonetization former money is no longer legal tender, although in certain cases it may still be used as money of exchange, i.e., the actual metallic value may sometimes be accepted in discharge of indebtedness. However, such was not the case with regard to the demonetization (1933) of U.S. gold. The demonetization law stipulated that gold may not lawfully be used in domestic exchange, although it may be purchased for shipment abroad. Other instances of demonetization were the American conversion (1873) of silver into money of exchange and the similar British conversion (1889) of pre-Victorian gold coins. See moneymoney,
term that actually refers to two concepts: the abstract unit of account in terms of which the value of goods, services, and obligations can be compared; and anything that is widely established as a means of payment.
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Demonetization

 

the discontinuance by the state of a coin as a legal means of payment and circulating medium. The coin subject to demonetization retains only the value of the amount of metal it contains.

Demonetization is coordinated with a change of the monetary system; for instance, it is conducted when the metal from which the coin was made has depreciated and a new currency metal is introduced. Thus, the depreciation of the value of copper led to demonetization of copper coins. The continuous depreciation of silver in the 19th century compelled almost all countries to demonetize silver coins and introduce gold currency. In 1961 in the USSR, as a result of the change of the price measuring unit and the issue of new paper money, a demonetization was effected: coins of 5 kopeks and higher were removed from circulation, whereas coins of 1, 2, and 3 kopeks preserved their legal purchasing power. Coins of the latter category are used along with new coins of the same denominations.

A demonetization may also be made for political reasons: for example, the demonetization of coins of tsarist mintage in the USSR after the Great October Socialist Revolution.