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Basically I have a world where people use diamonds as currency, and the reason they do this is because diamonds specifically are alchemically inert. Other useless metals like gold are nothing close to alchemically inert so, if they tried to turn those into currency, alchemists would change the atomic number of coins causing spiraling deflation. Diamonds are the solution to this problem.

My question is, what are the problems with this diamond currency? To be used as currency, the diamonds do have to be polished and a particular carat, but that is basically all. Are diamonds so common that people might need alot of them to buy things at medieval population levels? Would the material usefulness of diamonds not prevent the deflation problem, merely making it not as bad? I intend to use diamonds as currency in this world, and I am wanting to see if these potential pitfalls are going to be present in my world or not.

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    $\begingroup$ Given that most people nowadays think diamonds and their equivalents (emeralds, rubies, saphires...) are very expensive, what makes you think they are common enough people will have a lot of them with the inefficient mining tools and limited trade of medieval age? $\endgroup$
    – Tortliena
    Sep 11 at 1:19
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    $\begingroup$ We have had lots and lots of questions about "can I use X as currency"? What makes this question unique? Note that you, as creator of your world, get to decide how common diamonds are, obviously they would never have been viable as currency in the real medieval world given there would have been less than one mined, polished diamond per person in the world, at a guess. (Read the Hitchhikers Guide to the Galaxy for discussions of using the ninji and pu as units of currency to see the problem with this.) $\endgroup$
    – KerrAvon2055
    Sep 11 at 1:25
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    $\begingroup$ Please add details about your world. Tortliena assumes a medieval age, because of the alchemists and "medieval population levels", but you don't explicate it. What level of technology does your world have? $\endgroup$
    – Joachim
    Sep 11 at 9:33
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    $\begingroup$ How do you make change? $\endgroup$
    – nzaman
    Sep 11 at 12:49
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    $\begingroup$ @nzaman --- Smaller diamonds. $\endgroup$
    – elemtilas
    Sep 11 at 16:32

10 Answers 10

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Hard to Standardize

Gold can be cut into standard weight chunks known as coins. These can be given stamped shapes to minimize the chance of imposture. Furthermore, gold is gold. Some gold is not better than other gold. (Since it's so soft, and precious, it's generally alloyed. This, however, can be tested simply by testing its density.)

Diamonds have to be cut according their nature. This means they are more or less in carats, and have different shapes. Perhaps you can go by weight, but then you have that diamonds of first water are the same value as those that are heavily flawed and deeply discolored.

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    $\begingroup$ I agree with this answer in general, but have one nitpick: gold varies in purity, i.e. a gold coin is never 100% gold, but some promised proportion of gold in alloy with other metals. So the challenge is how you invent the equivalent with diamonds: what universal scale do you value them on, and how do you certify that a diamond is at some point on that scale without having to reassess it at every transaction. $\endgroup$
    – IMSoP
    Sep 12 at 8:33
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Benefit vs Cost


Any form of currency can be destroyed, stolen, lost, counterfeited, etc. Diamonds are no exception. Any form of currency, in order to be useful, has to be plentiful enough to smooth the wheels of commerce but also rare enough that it actually has some value. Any form of currency has to be available. If your medieval setting is Olde Englande (TM), and all the diamonds are in South Africa, then this isn't very useful.


I will assume that diamonds are plentiful enough to be useful in a fairly large economic network that extends well beyond your focus country, yet still rare enough to be valuable.


This brings us to the only real limiting factor you've got, and that's the business of being "alchemically inert". And its inverse --- everything else is alchemically active. As I said, counterfeiting is a problem that every currency faces, and whilst your alchemists might not be able turn coal into diamond, it might be possible to turn it into quartz or some other mineral, cut and polish them, and pass them off through a standard money laundering scheme just as one would with fake coin or banknotes.


A question that needs to be considered: if you are so worried about alchemists messing with a gold (or silver, or iron) currency to the point that the only viable currency in the entire world is diamond, what kind of magical power are we actually looking at here!? It sounds like matter manipulation at the subatomic level is fairly trivial. Why would your society even need currency if very powerful alchemists could literally take basic raw matter and turn it into something useful (other than diamonds) or edible or valuable?


A note on deflation & inflation. Deflation is what happens when a dragon comes along and steals all your treasury's hoard of diamonds. Or burns them to ash. The first is a sort of long term deflation --- there is less money in your local economy to do the same job, until a brave knight can sally forth and slay the dragon. Your local treasury would have to issue some kind of emergency money to take the place of the temporarily mislaid diamonds. The latter, of course, is a permanent loss to your economy.


Inflation is what happens when the Dwarves who supply your diamonds get tired of working for low pay and in retribution dump a load of worthless gems into your economy. Now you have so much floating around that prices rise, the value of the carat actually drops and your currency becomes worth less and less.


In summation, I would argue that your people don't have a lot of choice. If alchemists are so powerful that they can easily flood whole economies with good false money, then you've got to take the bad with the good. Fortunately, as you describe it, diamond money is very feasible and easy to work with at a medieval tech level. Your basic technologies would be gem cutting & polishing, and accurate weights.


Just for interest sake, a 5 ct diamond weighs 1g and might be about the size of your small fingernail.

Whiteflash.com

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    $\begingroup$ Minor nitpick at the end. A 5ct diamond weighs exactly one gram. By definition 1ct=0.2 gram. Chocolate is usually sold in 500 ct bars. It is just more common to use grams instead of carat for anything but gemstones and ct for gemstones. $\endgroup$
    – quarague
    Sep 11 at 10:41
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    $\begingroup$ @quarague --- Fixed! I always knew choco was precious! $\endgroup$
    – elemtilas
    Sep 11 at 16:31
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    $\begingroup$ @Cadence Minor quibble here, crystals are not "by definition, non-metallic". Elemental metals (and most metallic alloys) in their normal state, are almost invariably crystalline. In fact, it is technically challenging to convert any metal to an amorphous or glassy (i.e. non-crystalline) state. $\endgroup$
    – Penguino
    Sep 12 at 1:36
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    $\begingroup$ Chem. reference - All metallic elements (except Cs, Ga, and Hg) are crystalline solids at room temperature. Like ionic solids, metals and alloys have a very strong tendency to crystallize, whether they are made by thermal processing or by other techniques such as solution reduction or electroplating. Metals crystallize readily ... $\endgroup$
    – Gary Walker
    Sep 12 at 3:01
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    $\begingroup$ @Cadence - Metallic crystals are not typically very similar in appearance to ionic crystal structures. You and Penguino are both right depending upon on different perspective. $\endgroup$
    – Gary Walker
    Sep 12 at 3:07
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There are two major problems, both pertaining to counterfeit money.

  1. An average person cannot tell the difference between a real diamond and a zircon crystal. You need a professional to tell if the crystal is an actual diamond or zircon, or something similar. So, using these crystals as money poses a great risk for everyone who cannot afford a professional (or something similar, maybe some test kit that destroys zircons but not diamonds), and all transactions slow down because every crystal should be checked every time a significant amount of money is transferred. Otherwise it is too easy to slip in fake diamonds.
  2. It is impossible to control all sources of diamonds & outlaw unauthorized diamond cutting. This gives room for a professional to make authentic diamonds that can be used as money. There is no way to ensure that only some diamonds are legitimate and others are not.

You need a currency that cannot be faked or created this easily.

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    $\begingroup$ And on the flip side, any bank in an isolated community needs currency. Historically, many local banks issued their own currency to be used within the community. Hiring a professional to make authentic diamonds to be used as currency is something that a banker would do. $\endgroup$
    – David R
    Sep 11 at 15:25
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    $\begingroup$ You're mixing up ideas of real and fiat currency. The value of gold was determined by it's weight and coins were just standard weights of gold. Similarly, the monetary value of these diamonds is determined by inherent properties such as the cut and carat. Distinguishing between real and fake matters, but it doesn't matter who made them just that it is right because who made currency only matters when we are using fiat currency. $\endgroup$
    – skout
    Sep 11 at 18:39
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    $\begingroup$ @skout Diamonds do not have inherent price, though, like gold. Not at least in our world here. Supply and demand determine the price, and some major companies have created artificial demand and artificial scarcity to keep the prices up. If more diamonds were introduced to the market, the prices would go down, they can even plummet, which means inflation. See eg. thecuriouseconomist.com/are-diamonds-really-that-scarce $\endgroup$
    – Jani Miettinen
    Sep 11 at 20:22
  • $\begingroup$ It means that in practice (if your world is enough like ours) diamonds are not completely unlike fiat money, which is what you probably wanted to avoid. But, these are not showstoppers, they are problems in all currencies, even with gold but to lesser extent, so you can probably figure out how to deal with these issues. $\endgroup$
    – Jani Miettinen
    Sep 11 at 22:05
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    $\begingroup$ A simple test kit could be a topaz crystal: With a Mohs hardness of 8, it will scratch zircon (6.5-7.5) or quartz (7), but not diamond (10). $\endgroup$
    – dan04
    Sep 11 at 23:23
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They burn up, perhaps too easily

There was an experiment when a scientist (IIRC French) decided to check what would happen if a diamond would be put into the fire. Poof went the diamond. Diamonds are mere allotropic carbon (AKA coal in a different form), so while they can be "alchemically inert" they are still susceptible to heat and oxygenation. Your diamond supply would quickly run out without means to generate more of them at a steady pace to have them be a currency.

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    $\begingroup$ Just about any other currency can be destroyed by fire. Your gold coin at 1,947°F and the diamond at 1562°F. That’s a slight advantage, and sure, you at least have the metal remaining with the coin. But I don’t think fire alone is a significant distinction in currency since the OP stated the form defined the value rather than just the material. $\endgroup$
    – Vogon Poet
    Sep 11 at 4:37
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    $\begingroup$ @VogonPoet --- Gold just melts. Pick the blobs of metal out of what's left of your foe. $\endgroup$
    – elemtilas
    Sep 11 at 4:51
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    $\begingroup$ Diamonds do burn --- but not very easily! They require higher heat to begin to burn and require some special conditions to really combust. A diamond can easily survive a house fire --- and a jeweler can essentially remove the fire damage from the diamond by recutting it. $\endgroup$
    – elemtilas
    Sep 11 at 4:56
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    $\begingroup$ @VogonPoet Yes, but gold coins can be recast. Once a diamond goes poof, there's no way to get it back. Moreover, in the past what mattered was the weight of the gold. A stamped coin was just a pre-calibrated standard weight (if you trusted the mint). $\endgroup$
    – No Name
    Sep 11 at 13:11
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    $\begingroup$ I came here to say this. Also they’re very brittle and prone to chips and fractures, so they might work as a unit of account, but they’re really not great for currency that needs to be handled a lot, unless perhaps you encased them in something tougher. $\endgroup$
    – Jon Purdy
    Sep 11 at 21:21
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Use a substance that can only be made by alchemy

Gold can be counterfeited by alchemists, but diamond can be counterfeited by anyone. Among metals, gold has a color, density, and hardness that makes it really hard to counterfeit without magic. But Diamonds are really hard to tell apart from a wide range of other naturally occurring crystals including certain kinds of Quartz, Sapphire, Topaz, Emerald, Amethyst, Aquamarine, and Garnet.

Instead of looking for a material that alchemists can't make, it might server you better to use a material that only the BEST alchemists can make. When it comes to fiat currency, it is practically impossible to make a dollar bill that an adequately skilled craftsman can not duplicate, so governments simply hire the best engravers, chemists, etc so that only the best of the best would have the skill to make a fake which makes controlling the few who could do it much easier.

So make your coins out of something so exotic, that only the best alchemists could figure out how to begin replicating it.

enter image description here

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There are no problems with it! There have to be enough around that the economy isn't under constant threat of "money" running out, but they also probably need to be controlled by the government.

Were I creating such a world, I would have governments keep monetary control by embedding the diamonds, particularly smaller ones, into otherwise-useless coins. The coins have to be minted and stamped to avoid counterfeiting, and the diamond would basically be appraised for other factors (cut, clarity, carat, alchemical stability, etc.), and embedded into a coin of a particular value. I.e., a 10-unit coin is a 10-unit coin regardless of where it originated.

You can also have fun with instead of governments controlling it, some guild or powerful faction controls that process. Shenanigans ensue when someone attempts to counterfeit.

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  • $\begingroup$ Eurodiamonddollars. Brilliant! $\endgroup$
    – elemtilas
    Sep 11 at 16:34
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The issues with all "hard money":

  1. Limited supplies impose inflationary pressures on a growing economy.
  2. Discoveries of large new deposits can cause deflation when speculators short the market.
  3. Weight and volume increases the cost of transactions.
  4. Easier to counterfeit than currencies. At least when the counterfeiters get the upper hand a particular denomination of currency, it's easy relatively easy to replace it with a harder to counterfeit currency.
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  • $\begingroup$ I think you mixed up inflation and deflation in points 1 and 2. A new source of diamonds would lead to an oversupply / drop in the relative price of diamonds, which is inflation. A growing economy leads to each diamond representing a larger fraction => deflation. $\endgroup$
    – Chieron
    Sep 12 at 13:59
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An economy of any scale running purely on one commodity is as impractical as one running purely on ad hoc barter.

Using a rare material like gold is most directly useful for large transactions, where it's practical for a detailed assessment of the value to be made independently by each party. With gold, this assessment is an objective one of weight and purity, with the only arguments being about how to prove the purity. With diamonds, some appropriate scale of "quality" would be needed, which might lead to more disputes along the lines of "I asked for 200 grade 5 diamonds, some of these are clearly grade 4".

For smaller every day transactions, people do not want to be constantly assessing the value of every token themselves, they want someone to vouch for it. That's where coins come in: the government, or some other body, assesses the weight and purity of a piece of metal, and stamps it as a particular value. Most transactions proceed based on the authenticity of the stamp, not the weight and purity of the metal.

Moreover, the minting authority standardises that value, so that you don't have to work out what "23g at 80% + 19g at 70%" gives you, you just count coins in a few fixed denominations. With precious metals, these denominations can be arbitrarily small, just by adding more base metal - a single coin containing 80% gold by weight can be recast into 80 coins of equal weight but only 1% gold.

So, someone will need to certify the diamond. Engraving it with a hallmark is tricky, so perhaps you embed it into a minted coin, as Russell Fox suggests. Rather than just measuring purity, as with precious metals, the mint will be acting as arbiter of disputes about quality, and how two small diamonds relate in value to one medium-sized diamond.

They'll also need a simplified system of denominations, so that the coins are freely interchangeable. A challenge there is that diamonds can't be arbitrarily divided and recombined like molten metal, and their value isn't linear - two 5-carat diamonds are not worth the same as one 10-carat diamond. Most coins will therefore probably have multiple diamonds embedded, rather than fractions as would be the case with gold coins. Whether that's practical will depend on how common diamonds are.

At this point, your diamond economy quickly starts looking like real economies in history - the controller of the mint can start inflating the currency by over-certifying diamonds; and smaller denominations of coin can be minted with no diamonds at all, valued because the mint promises to exchange them at a certain ratio. The "diamond standard" eventually becomes a largely abstract measure for comparing the validity of coins minted by different authorities, complicated by the more subjective nature of "diamond quality" as opposed to the purity of a precious metal.

In other words, you have bags of diamonds in Fort Knox to facilitate international trade, but you don't have someone handing a bag of glistening gems to their local baker in the morning, they hand over copper pennies just like in our world.

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Working from @nosajimiki's answer, create an alchemical process that produces a substance that is alchemically inert, doesn't occur in nature, is suitably resilient, and is unmistakable. Some sort of malleable metal would be good. The main ingredient for this process is... diamonds.

The purer the diamond, the more metal is produced.

Smaller denominations could be literally smaller or have holes in them, sort of like old Chinese coins. Or they could be broken into "pieces of 8".

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There are solutions to your problems.

First problem lies in glass or similar looking gems. They can be tested for hardness. Diamond is very very hard. Widely available corundum test pieces could be used to test it.

Second is shaping and standardizing coins. If diamonds are many and large enough, they can be cut with magic. Since it is very very hard, it requires a mage/alchemist of the utmost skill. Hand cutting to standard size and shape is difficult, especially if it has some engravings on it. Gold/silver has a similar problem, anyone can mold gold into any shape, but forging currency requires skill, which makes forging not very lucrative. If you can do that, you can work for the king or other similar high paying non-criminal work.

Finally, availability. You can either mine them, or top tier alchemists can create them from coal with incredible difficulty. Your king should be able to control the availability at least to a point. Mining is easier to control, especially if it is rare enough. If say a peasant finds a diamond, treasury can buy it from them at a lower price point to encourage people to do the right thing.

If created by alchemists, your king will hire every alchemist that can create diamonds. You might think a top tier alchemist will forge their own currency to get rich, but if you can create diamonds, you probably can create so many other things that will fetch you legitimate currency. And those other things will not get you hanged.

All in all, there will still be some money laundering, which will not be much different from what we had in the past or even in the present.

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