The face value of a coin being greater than its intrinsic value is a common characteristic of modern coinage for several reasons:
- Preventing hoarding and melting: If the metal content (intrinsic value) of a coin were worth more than its face value, people would melt down the coins to sell the metal for a profit, withdrawing them from circulation and disrupting the economy.
- Government profitability and cost recovery: Governments set the face value higher than the intrinsic value to recover production costs (including materials, labor, and minting processes) and potentially generate a profit, known as seigniorage.
- Public trust and legal tender: The acceptance of coins as a medium of exchange relies on public trust and the government’s declaration of them as legal tender, meaning they are legally required to be accepted for transactions, regardless of their material worth.
- Economic function: Having the face value exceed the intrinsic value ensures coins remain functional in the economy as readily available and accepted currency for everyday transactions.
- Scarcity and demand: While the general principle is for face value to be greater than intrinsic value, some collector coins, due to rarity, errors, or precious metal content, can have an actual market value exceeding their face value due to scarcity and collector demand.
In summary, the design of modern coins, with face value exceeding intrinsic value, is a pragmatic approach to maintain currency stability, ensure economic functionality, and prevent the removal of coins from circulation for their metal content.
Is the face value of a coin more than its intrinsic value?
This means that the coin is worth more as a medium of exchange (its face value) than it is worth in terms of its raw materials (its intrinsic value). This is why coins are often made with base metals, such as copper, nickel, and zinc, which are less valuable than precious metals like gold and silver.
How is face value different from intrinsic value?
For instance value of a currency note is what is written on it. Thus, with a hundred rupee note one can buy goods and services worth rupees one hundred . Intrinsic value refers to the value of matter that coin ( or paper ) is made of .
In which type of money is the face value higher than its intrinsic value?
Good point! Fiat money is paper money with a face value greater than its intrinsic value. Its value is determined by government decree and is not redeemable for a standard commodity. Fiat money serves as a medium of exchange and a standard of value. The face value of fiat money is not equal to its real value.
Is with token money the face value greater than the intrinsic value True or false?
Token money is also money whose face value exceeds its cost of production, i.e. the intrinsic value is lower than the extrinsic value. This means that the actual worth of a note or coin is much less than what it is used for.