# How do I determine the value of a currency?

I am building my fantasy world from the ground up. In particular, for the races that use a coin-based currency, how do I figure out what it is worth?

Say we have the basic copper/silver/gold pieces each being 1/10th of the next value. Should I arbitrarily assign an annual wage for the working class or should I use something else as a standard (e.g. cattle)?

If I decide on a different denomination system for another race (shells/stones/glass each being 1/6th of the next) should I value this separately or based off the precious metals currency?

I am not looking for an in depth economic system (yet) just the basics.

• Keep in mind that multi-metal metal standard currency systems are rarely stable long term, because of changes in the relative availability of the metals involved. You would be better off using a single metal and simply adjust the amount. For example, (completely made up on the spot) a cow is worth 10 grams of gold, and an annual wage for some particular work is 50 grams of gold. Coins come in denominations from 0.005 to 10 grams of gold, in reasonable increments. – a CVn Oct 4 '16 at 11:58
• If your fantasy world is places on a medieval era remember that barter was a thing – Yacomini Oct 4 '16 at 12:04
• The best thing you can do is learn the economics. They're simple and they avoid dozens of silly pitfalls you fall into if you don't pay attention to them. However if that fails, rely on beer-o-nomics. The idea of beeronomics is that the value of beer is pretty much constant across the world, because the value of getting drunk is the same. Its a useful trick for determining tips (find out the cost of a beer, tip a guy a "6-pack" by giving him that much cash). Then note that this amount must be pocket change -- easily transportable. That should give you a reasonable start. – Cort Ammon Oct 4 '16 at 16:17
• Again, let me rage against the dying of interesting questions. Why would you close as opinion based something with so narrow a topic? It is a disservice to this site to close a question that is explicitly worded as worldbuilding (e.g. "I am building my fantasy world") and explicitly limits its own scope (e.g "Iam not looking for ...in-depth...just the basics"). The author is looking for resources for creating a currency system. Why can't we help him? Isn't that what this site is for? – kingledion Oct 4 '16 at 16:40
• @Cort Ammon: I don't think beeronomics works. At the local grocery store, good beer may cost 2-3 times as much as reallly cheap beer. Then beer is made from grain, so if your local area has a crop failure, the price will rise dramatically, as many people will choose to make bread instead. Lastly, some people value getting drunk much more highly than others do. Indeed, some of us even place a negative value on it, so two beers are not worth twice as much as one :-) – jamesqf Oct 4 '16 at 18:52

An example of a Gold-Silver-Copper coinage system

The standard D&D gold/silver/copper system with its multiples of 10 comes from the Roman currency system of ~200BC-200AD. There were other Roman coins, but for the entirety of that time period, corresponding with the 'Classical' Roman 'golden age', the aureus, denarius, and as were issued in gold, silver, and bronze/copper respectively (the as went from bronze to copper during Augustus' reign around 23BC).

The ratios of those coins were 1 aureus = 25 denarius = 250 asses, so not quite the 1:10:100 ratio. However, the aureus was more than twice the weight of the denarius (7g to 3g) so if those two coins had been the same weight, then you would have the 1:10:100 ratio. The as was between 9-12g; its value decreased over time from 1/10 denarius to 1/16 denarius in 140BC, possibly as a result of financing the Punic wars with Carthage.

During Augustus's reign also another coin entered circulation. Now that there were 16 asses to a denarius, the sestertius was added at about 20-30g of brass and worth 4 asses or quarter of a denarius. This changed the ratio of aureus:denarius:sestertius:as to 1:25:100:400.

So the above is the coinage situation for 400 years of roman empire. What were these coins worth?

Relative value of coinage

In the late roman republic, a legionary was paid 112.5 denarius a year, or about 1/3 denarius a day (or two per week). Julius Caesar increased the pay to 225 denarius a year, or, or about 4 denarius a week. Tacitus says that the Roman army of the Rhine in the reign of Tiberius (~30AD) got 10 asses a day, and demanded a pay raise to a denarius a day (since at that time it was 16 asses to the denarius). By the reign of Domitian (~90AD) the pay was down to 1200 sesterces a year, which is 300 denarii a year, a little less than one a day.

For civilian pay, in the time of Diocletian (~300AD), a farm laborer was paid 400 asses a month (25 denarii a month) and a teacher paid 800 asses per month per student.

A sestercius in ancient Pompeii was probably the most used currency by common people. One could buy you two loaves of bread or a liter of wine (or less if it was good wine). 15 lbs of wheat ran about 7 sesterces, while the same of rye was only 3 sesterces. Slaves went for 2000-6000 sesterces.

The aureus was probably not used in by common people at all, nor was it used to pay taxes, which were often paid in kind (i.e. food) for use by the local military garrison. The aureus probably acted as a sort of reserve currency, like federal reserve notes today. It was minted in Rome, paid out to the provinces for civil servants salary, then paid back to Rome as taxes.

Non-precious metal currencies

In general, precious metal currencies drove out other forms of currency when they competed because precious metal currencies have the advantage of relatively constant supply and superior durability. From real world-evidence, you could conclude that more advanced economies that could perform large scale mining would eventually settle on precious metals. Therefore, other systems (like cowrie shells, or the like) would be used in less advanced economies and could be pegged to the precious metal system (10 shells to a copper, or something).

Alternatively, your world may have an item that is superior to precious metals. Mystic crystals could be available in limited quantities, with constant supply and superior durability, and have the advantage over precious metals that they have an intrinsic value to anyone doing magic. Therefore, mystic crystals would become the currency of the most advanced economy and gold/silver would be for lesser, peripheral economies.

• > have the advantage over precious metals that they have an intrinsic value to anyone doing magic However, progress that reshapes supply or demand for those would then mess with the whole economy. – Daerdemandt Oct 4 '16 at 13:16
• @Daerdemandt That is assuming that they are consumed in the process of being used for magic. If they are not consumed, then they are just hoarded by the rich, just like gold and silver were in real history. Gold and silver were always in high demand, the crystals could be same. – kingledion Oct 4 '16 at 13:20
• Nice answer, but it could have done with more citations. Also, the *Non-precious metal currencies* seems backwards. Surely non-precious metal currency is more sustainable i.e. copper, bronze, etc.. – n00dles Oct 4 '16 at 15:57
• @n00dles The advantage of precious metals is that they are never destroyed. Gold and silver are turned into coins and jewelry, but in all of its forms is useful as currency and recycled ad infinitum. Iron and copper and bronze are used up to make things. When every farmer wants an iron plowshare, or every household pewter table, those metals are used up in something that people aren't willing to use as an item of exchange. Sure you can sell your plowshare or silverware, but you need new ones. Non-precious metals go out of circulation, precious metals do not, so their supply is more stable. – kingledion Oct 4 '16 at 16:36
• a farm laborer was paid 400 asses a month ... wow. Roman farmboys sure got a lot of ass. – HopelessN00b Oct 5 '16 at 14:20

Some historical examples to work from:

Ancient Cypriot copper ingots were cast in the form of a stylized oxhide. This indicated throughout the Mycenaean world that the expected value of a copper ingot was one ox. Since barter was the most common trade arrangement of that time, this "proto money" created a sort of common value system, and allowed Cypriot traders to establish a benchmark of sorts when trading. One copper ingot = one ox, so how many oxen would translate into a quantity of wine or oil or other commodities the trader was interested in.

Perhaps more importantly, since you are establishing a fantasy world where multiple nations exist and trade across the borders, you will need to establish what is known as Purchasing Power Parity, or PPP.

The Economist magazine has an interesting example of how to do this, called the Big Mac Index. Here it is from the Economist. It looks at nations around the world, and asks "how many hours of labour would it take to purchase a Big Mac meal in these countries?" Obviously a lower number of working hours to purchase a Big Mac meal makes the currency's "purchasing power" much stronger than a place where it takes a lot of hours of labour. The Economist's Big Mac Index is actually very sophisticated, since it also measures the general economy of the nation (A Big Mac meal requires a lot of ingredients from many areas of the economy. A nation where it takes a lot of labour to purchase a Big Mac probably also suffers shortages of many key ingredients).

For your purposes, unless there is a Ye Old MacDonald's chain across the realms, a PPP index should be established in the back of your head for common items like a cow, wheat, beer and so on. The National economy may value their currency in some arbitrary manner, but (as we see in many nations where the economy is weak or failing) the true value of the currency may be radically different. As someone in Venezuela today how many Bolivars are needed to exchange for a single Dollar USD compared to 2000AD and you get the idea.

So you can have the Magic Kingdom value one "Mickey" to ten "Minnies" or one hundred "Plutos", but the ordinary person is asking "How many Plutos do I need for a beer?" and a trader is asking "In this kingdom, how many of my Zognars would it take to purchase a beer?"

There have been some nice answers so far. Another important detail:

If poor people deal with the cash economy, the smallest coins must be suitable for their needs. Imagine the copper piece (cp) is the smallest unit, and a casual farm worker gets paid 1 cp per day. That guy couldn't take a day's earnings and take some of it to the cobbler to mend his shoes, some to the inn for a place to sleep, and some to a tavern for beer and a pot of porridge. 2 or 3 cp per day are slightly better, but still not good.

Perhaps it would be possible to pay that worker 6 cp per week, and the inn would offer room-and-board for a week for 4 cp. That allows two single-cp purchases per week.

Two options :

• Make those copper coins smaller. A casual worker earns approx. 10 cp per day. Most of that goes for food and shelter, but there is 1 or 2 cp left for other expenses. Other prices are scaled accordingly.
• Most villagers or townsmen don't deal in cash. They will accept coins from wandering heroes, but by necessity it will be at greatly inflated prices. If a night in the flea-bitten inn costs 1 cp, the innkeeper can throw in a couple of pints of ale and still make a profit.
• o.m. makes a good point that after the Roman times discussed in my post, the availability and use of money dropped substantially in the early Middle Ages. A peasant village of 1000 AD would be familiar with coins, but would probably not be using them. On the other hand, any inn dealing with travelers, and large trading town would use coins of various sorts. Reference: Money and Its Use in Medieval Europe (Peter Spufford's various books on economy are excellent, by the way) – kingledion Oct 4 '16 at 14:57
• Slight typo: it should be "allows two single-Cp purchases per week". – MichaelS Oct 4 '16 at 21:57
• Is there a need for a coin for purchases worth less than a day's wages of an unskilled laborer? going out to eat is hardly typical behavior of the impoverished peasant. the smallest unit needed for transactions could still represent far more than a day's wages. Very cheap metal is a modern concept - it would likely not be so disposable as to be worth only a fraction of a day of ditch digging. Additionally, when the value is the metal itself coins need not be kept whole - cut it in half, or even farther down to wedges of just 1/8 of a coin (pieces of eight if you will). – pluckedkiwi Oct 6 '16 at 14:57
• @pluckedkiwi, I was assuming a migrant farm worker who cannot go home for dinner. I believe that some sort of food-and-board arrangement is more likely than cash, but I wanted to explain one consequence of using cash. Re pieces of eight, if it is common practice to cut the coin, then in practice you have wedge-shaped smaller coins. – o.m. Oct 6 '16 at 16:59

Basically in a Commodity monetary system with silver/gold coins you can value money whatever you want, depending on the rarity of the metal (i.e. you just say that gold in your world is very-very rare and one can buy a house with a single gold coin).

Price formation is actually quite a hard task, as societies on different development stages tend to value different things. Baseline is "how much effort should be put to make a thing and how many people in current area can craft this thing" - the prices will vary for different regions and nations. For example an ounce of pepper or salt, brought by a trader from a far-away kingdom can easily be more expensive, than, say a horse or a sword in current location (if we think of medieval type of society with no fast/reliable transport system).

I think it's pretty safe to start from defining an "average worker" salary to be enough to have something to eat daily and have some entertainment regularly for a somewhat prosperous city. Food costs less, unless region lacks means of food production (like a desert); tools and furniture cost more (as more and more people and effort are involved in crafting a specific tool "manually"), etc., etc.

It's pretty difficult to try to make up realistic economic system, yet it's your world, so you can always say "this item costs that much just because..." (or, as proposed by @kingledion in his answer - you can just borrow some prices or one-thing to other-thing price ratios from known historical examples)

Question needs further clarification

I suppose, you're mixing up a Commodity monetary system in the first case and Representative moneatry system or even Fiat monetary system in the second case.

If both systems are meant to use commodity money (the second race values highly shells/stones/glass), then the second race seems to be a bit "far behind" (i.e. doesn't have metallurgy), making them a potential victim to the races of first group - starting from unfair trades (like exchanging worthless glass beads for land/something of value, WITHOUT anoption to trade vice versa because first group of races doesn't value glass), ending with a brute-force conquest (taking in account an advantage of metallic weaponry/armor).

• The different systems were just an example and definitely have not been decided upon. But I'll read up on the links, them seem to be a good starting point! – Kalcipher23 Oct 4 '16 at 12:13
• you can value money whatever you want, depending on the rarity of the metal - True, but the difficult part is the relation between the prices of different commodities. If one gold coin can buy a house, how much gold do you need to buy a cow? A chicken? A loaf of bread? (if one gold coin buys a house, you will probably need a different kind of monetary unit to be able to buy a loaf of bread (which would probably mean that gold is not ordinary currency in this context, for bread sales are much more common than house sales). – Luís Henrique Oct 4 '16 at 13:13
• @LuísHenrique added a part about price formation to the answer. – haldagan Oct 4 '16 at 13:40

Say we have the basic copper/silver/gold pieces each being 1/10th of the next value. Should I arbitrarily assign an annual wage for the working class or should I use something else as a standard (e.g. cattle)?

If the working class earns wages (instead of working for food and to avoid whippings, like in slavery, or for a piece of arable land, like in feudalism), I suppose that your society is quite thoroughly commodified. If so, it needs continuous circulation of money, and money will tend to be a specialised commodity, that is basically only useful as money. This would rule out cattle, which will be eventually taken out of circulation for use as food.

In a thoroughly commodified economy, the relation between money, prices, and amount of commodities, is given by the simple formula

M * V = P * Q

where M is the amount of circulating money, V is the speed at which such money circulates, P is the total price of commodities, and Q is the amount of commodities produced. This is valid for the economy as a whole, and, with some caution, for each single kind of commodity; goods that are produced in great amounts will be less expensive than goods that are produced in small amounts (if Q is bigger, then P must be smaller, and conversely). If your world includes magic, this must be taken into account: a house is much more expensive than a loaf of bread in our world because in the time you build a house you can produce millions of loaves of bread. If magic makes building a house much easier, then the relation between the prices of houses and bread will quite likely change. If magic allows people to multiply/create money, then the effects on M will be chaotic, possibly making a monetary economy extremely unstable or even inviable - so perhaps it would be wise to make money magically non-reproduceable too.

As for wages, they must be enough to sustain a labourer and his/her family, ie, you would need to add everything a worker needs to buy during a year (365 * 3 * 4 loaves of bread, supposing that the average family has four members and each of them eats three loaves of bread a day; 1/40 of a house, supposing that the average working life is 40 years; 4 pants and 24 shirts, supposing that each member of the family wears off one pant and six shirts a year; and etc. Those things are at least in part culturally determined, so you must take into account whether females are supposed to work for a wage or not, whether owning a house or renting one is the norm, whether a fashion industry makes clothes obsolete each year or whether it is socially acceptable to wear a ten-year old coat, etc). Wages must also not be much bigger than that, otherwise too many workers will be able to buy their own business, no longer necessitating a job to maintain themselves.

• so perhaps it would be wise to make money magically non-reproduceable too => in general, any magic system which allows production of matter will simply break economics... unless magic is scarce or its users have better things to do than trying to earn more money. My advice for magic is that matter/energy should NOT be created (or destroyed), much like in the real world. Afterward, if a mage transforms a gold ingot into gold coins then it does not matter. – Matthieu M. Oct 5 '16 at 9:57
• @MatthieuM. I'd rather say that the situation will resolve itself by letting easily reproducible things fall out of use as money. Not only matter can be used as money. Currently, there are monetary systems based on power, trust, matter or information (in roughly that order of prevalence). – Eugene Ryabtsev Oct 5 '16 at 11:04

## In general

What you're missing is that "value" is a very arbitrary concept. The value of an item (service, currency, ...) can be defined in any way. Some examples may include:

• What was paid most recently for this specific item? (I paid 8000€ for my 1-year-old used car)
• What's paid for items of the same kind on a market? (max, min, average, median,...)
• What's highest price a buyer would pay? (auction)
• What's the second highest bid? (second-price auction, e.g. ebay)
• What's the lowest price a seller would accept? (inverted auction)
• What's material cost plus work invested to create the item? (production cost)
• What's the highest amount one could earn with the resources and time required to obtain the item? (cost of opportunity)

Part of the above is why material currencies may fail: If the material is worth more than the coin, just melt the coin. If it's the other way round, buy the material and fake the coin.

However without a globalized and/or computerized market and impartial institutions most of it boils down to:

• What can I get (away with)?

Ever been to India with a 1000 Rupee bill? When you buy antibiotics for 27 Rupees and the pharmacy clerk claims, he has no change, you'll just pay 100 Rupees. As a tourist I still felt lucky, because he handed me lots of small bills, so I wouldn't have to change them at a tourist trap restaurant who would (claim to) have even less change so that food will be more expensive than antibiotics. Plus, comparable medicine would've cost more than 1,20€ in Europe and above all: I needed it "now"...

Speaking of antibiotics, how come they feed large quantities to animals, which meat is rather cheap, when it's so damn expensive in an apothecary? It's the context: You pay a lot for the same stuff in an apothecary, while a farmer buys it in bulk from the veterinarian for less. This is simply because the apothecary can charge as much.

## In a fantasy setting

If the Dwarf likes rubies a lot more than gold (coins), I can sell him my rubies at a higher than usual price. If he's really thirsty (or drunk), I can sell him my beer at a higher than usual price. If I don't want his obscure dwarven coins, I can insist he goes to the money changer first. If the money changer dislikes dwarves, he might try to "scam" him with bad rates.

It's not like there's any institution watching over any of this. There's only some upper class royal (probably a king), who hands out coins and accepts them back as payment. Maybe he (as highest judge) allows debtors to pay off debts in his coins and forces creditors to accept them. Maybe he'll send someone to investigate, if some region seems to be overflowing with money that he didn't issue.

The rest is context and bartering.

What you really care about is the ratio between prices not the prices themselves. I doubt that you need to state in your story how much coins weigh and how much precious metal is in a coin (and how much is common metal used to bulk up).

Now, if you care mostly about ratios you could go with the prices in the modern economy for everything except land and raw labour, suitably disguised. Take the price of a cow in modern markets and call every 3 dollars a zonker or something. That would give you relatively consistent if not perfect ratios.

Land and labour are a special case. For labour I would just take a basket of goods needed for a worker (food, clothing etc), check how much they cost in your story, add a margin and it's the salary.

For land... it gets a bit complicated. Good thing, you don't really need a price for land, unless your hero buys a castle for cash or something.

Value is determined by the beings assigning it to the object. As such, obviously, what is valuable to one may be worthless to another... then again, certain objects may be valuable to both.

For example, I recall a particular island where shells were seen as decoration, including a particular rare smooth white spiral of particular shape. The islanders thought little more than it was pretty, however, to scientists in the outside world, it was quite valuable due to the rarity.

Communication therefore becomes important to establishing value amongst disparate forms of currency.

I recall another story where a non-verbal race wound up settling on one gem per page of brightly colored comics/magazines, an unexpected coup for the travelling merchants in question.

In yet another story, the race in question would bargain the work, but would ask detailed questions about how the person obtained what they were offering. For that race, the value was in how hard they had to work in order to produce their prized products, and they would only accept a trade if the items and materials being offered were obtained through equally hard work. Thus a rich person offering gold and gems typically had a more difficult time bargaining, as they usually did not actually perform the labors which made them rich themselves, while a poor person could trade a few coppers to receive the same or better than the rich person.

Therefore, pick items which would be valuable to each culture, and then compare what each culture deems valuable with what other cultures have to offer. Then decide what value each culture would assign to the items being offered by other cultures. The 'value' that will be settled upon is likely to be between the two. Furthermore, unless you prefer a static system for simplicity, 'value' fluctuates with demand and availability.