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I need help understanding what is going on with the Trenni silver coin scheme
plot that is mentioned throughout episodes 3-7 of _Spice and Wolf_ season 1.
Let me explain what I understand and hopefully get some clarity about these
_Spice and Wolf_ episode plots **(also if someone can block out the impending
spoilers that would be awesome, I don't know how to do it)**

So our main protagonist Lawrence gets word that the Trenni silver coin
currency is about to go up in its silver purity. This means that both the
actual metal value of the Trenni silver coin and its representative value will
go up.

> This all turns out to be wrong though, as Lawrence finds out the Trenni
> silver coins are actually becoming less pure and going down in value and
> what he was told was a lie. This plot then leads Lawrence to go over to the
> Milone trading company where somehow he hopes to make a profit off of
> telling the company this info.

Now this is where it gets complicated. How was the Milone trading company
going to make money off of the devaluing currency and how was Medio involved
with this?

  * In the anime the Milone Trading company, 

> upon hearing the devaluing silver info from Lawrence, started stockpiling
> Trenni silver coins. Why are they trying to stockpile the silver coins if
> their price and purity is going down? Shouldn't they be trying to get rid of
> all of their Trenni silver coins if the value is decreasing?

  * Also it is mentioned that the Medio trading company is 

> hiring people to give merchants the wrong info about how the Trenni silver
> coins are going up in value instead of actually going down. Lawrence was
> even told this lie. How does the Medio Trading company possibly gain any
> advantage from this?

Basically I am asking what is the economic plot in the episodes 3-7 of Spice
and Wolf season 1, explained in little kid terms, so I can hopefully
comprehend what is going on in the story and enjoy the anime even more. I am
sorry for not being more economics-savvy with this, but if you understand the
plot be much appreciated for some insight.


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spice-and-wolf
How did the "silver devaluation" scheme work?


Ok, let's look at the situation more carefully. You have your Trenni silver
coins, which have some % of silver in them. The market value of such a
currency is bound to the amount of the noble metal in each coin. It's very
simple and intuitive: silver is rare and valuable, so the more silver there is
in a coin, the more is the value of that coin.

Now, we have a situation where the amount of silver in the coins is going to
be _decreased_. What is going to happen? Well, the _new_ Trenni coins (with
less silver) will become less expensive than the _old_ Trenni coins. That
means, that it is profitable to save all the old coins you have.

By spreading the rumors that the amount of silver is going to _increase_ , the
Medio company is accomplishing two things at once. First, it makes people
think that it's profitable to sell their coins now (because they think that
after the new coins arrive, the value of the old ones will decrease). Second,
it creates a possibility to make people selling their coins for even a lower
price than they are now, simply because they want to get rid of the coins
ASAP, before the price drops.

Also, if they already have some new coins, they can even trade them for a
_larger_ amount (say, 2 old ones for 1 new, people think the new ones are more
valuable, remember) of old ones.

This lets the Medio company stock plenty of old silver coins, which as we
know, in reality, will be worth _more_ when the new ones are released. That's
how they want to make the profit.

The Milone company, after getting the information from Lawrence, starts doing
the same thing: buying Trenni coins to get a large stock of them before the
new coins are released. After the new coins will be in play, people will, of
course, know that they are really _less_ valuable, and the value of Milone
company's stock of old coins will increase further.

I hope the explanation wasn't too messy ;)


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When the silver coin in question has more silver in it, it is worth much more.
So the current coin that everyone is using is about to increase in value. It
is because the area is making more coins with less silver in them there,
making anyone with the current coin want to keep it because the value will
soon go up.

The kid who talks to our main protagonist tells him that the coin will
decrease in value due to the area making a coin with more silver, which is the
complete opposite of what will happen. So the people with the current coin who
have this info will want to get rid of the current coin ASAP. So they will
sell it to people for a low amount of money.

This is where that trading company comes in. They buy the coins that are
really about to increase in value. So, in the end, they make a profit, and the
traders given false info have been cheated out of a great deal of money.


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The comments on [SingerOfTheFall's
answer](https://anime.stackexchange.com/a/4032) is on the right track but not
quite got it yet.

Yes, when new coins of lower purity are introduced to circulation, all coins
of that type will lose value. It's due to the people using the coins having
less trust in said coins.

While that is the first step to understanding the scheme, it goes much deeper.
When Milone Trading company starts collecting the Trenni Silver Coins, they
are not doing so because they want them to be recycled in exchange for
exclusive deals. First, you have to think about why that particular country
would be lowering the purity. It's because the country of Trenni doesn't have
the silver to continue making coins of such high purity.

Yes, in the short view Trenni can make more coins, but this also means that
outside of their own borders, the coin will be worthless. In addition, within
their borders, the coin is not valued on how much silver is in it so much as
it is by how much the government says it is worth.

For example, let's say you have one pure 1 gram gold coin. Let's also say
these pure gold coins are the common currency in your country. That means even
though it is just 1 gram of gold, the government can say that the 1 gram is
worth 2 grams. This is something called
[seigniorage](https://en.wikipedia.org/wiki/Seigniorage). Now, this only works
to a certain degree, which depends on how much faith the people have in the
coins purity and the government manufacturing the coins. So, it is in the
country's best interest to keep purity high. However, when they decrease the
purity, while it will make a lot of money really fast and put more in
circulation, it does decrease the faith that the people have in the coin.
Meaning that even with a small decrease in purity, you may see a drastic
increase in how many coins any given item is worth due to people not having
faith in the purity of the coins. Therein lies why it isn't a good idea to
reduce the purity so drastically.

If the Government is reducing the purity, you can assume this means their
funds are getting low. Meaning that they would be more than eager to trade
exclusive deals for coins they can recycle. In that, the commenters were
correct. But, think. If Trenni were to suddenly come into a large amount of
silver they wouldn't _have_ to recycle all these coins into lower value ones.
They could slowly reintroduce them into circulation and therefore solve the
problem of having such low funds. That is why this deal was so valuable and
the land of Trenni would be willing to sacrifice quite a bit for the older
coins.

Also, Milone's goal was not to trade for deals. No, instead they traded all
the older higher purity coins for land, large area mining rights, tariff
control, and other privileges generally held solely by the government. Meaning
they could move their goods without paying tolls, resale the land at a higher
price, and sell individual mining rights for a small area to smaller companies
for a higher price per acre. For that matter, they could even further use the
land and mining rights for future income by leasing the land and mining rights
for certain areas in segments. Though it would be a little longer before you
made your money back, you would in the long term have a potential to earn much
more than you would just by selling it.

Now considering they were able to pay Lawrence back the next morning, I would
assume they resold all or at least some of the privileges they acquired, which
is the least risky way to play it since if they were to lease the land, there
is no guarantee that people will be willing to lease it. That leads to the
risk of actually losing money. It's my guess they sold the risky investments
and kept the privileges that would lead to the saving money in the future as
their portion of the profit.

Or there is a second option in which they could have kept all the assets and
privileges they gained and gave Lawrence Trenni coins out of the Companies
pocket based on the estimated value of the assets they'd acquired. That way,
Milone Trading still has the potential gain from the mining rights and such.

And then there's yet another option where they sold just enough of the assets
to make sure they hadn't suffered a loss in addition to the amount needed to
pay Lawrence. This, in my opinion, would be the smartest play considering it
would mean there is no risk of loss and their debts are settled. In addition,
they would have the leftover assets to do what they wanted with them. In
theory, this option is almost no risk with high potential gain.

Now to tackle why Medio would be spreading words of raising purities, and
truthfully, compared to the rest of all this, it's quite simple. If the
community believes the purity is going to raise, then they will begin getting
rid of older coins and trying to acquire these newer "thought to be more
valued" ones. This gives Medio to act as if they are a third uniformed party
and give the people newer coins in exchange for older coins. Likely they had
the same goal as Milone, this was just their way of collecting the coins.
Unfortunately, the direction they chose to collect the coins also requires
them scamming all the people that they tell into having the newer less pure
ones. That part of it really is quite simple.


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Part of the answer to this(which isn't as explicitly mentioned in the anime),
is that when Milone sells the gathered silver Trenni to the government, they
actually make the government pay _more_ than the coins are worth. The
government can do this because the resmelting the coins still gives more coins
than was provoided+the extra fee. (Example, sell 10 coins for 11 coins. These
10 coins are then smelted into 13 new coins. That way, the company gets 1 coin
in profit and the government gets 2).

This was however the lesser valuable trade(as shown by the initial sale profit
being quite low). The real profit came from selling the coins in exchange for
trade rigths and privileges(like no tariffs on wheat from the company holding
this privilege). This second option doesn't require the government to shell
out cash here and now(though they still lose in the long term), which is why
it was so attractive. In this case, Milone then sold the wheat privilege to
Medio, who actually traded fairly heavily in wheat, and from there made most
of their overall profits.


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The old trenni silver will technically be worth more in silver value even
though on the face it's still worth the same to the average layman. The
Kingdom of Trenni was having financial difficulties keeping a treasury in the
black and so they basically devalued their currency in silver value while
attempting to maintain the trust of the Trenni to remain the same fiat value.

To make it as simple as possible the Government of Trenni was trying to print
money to make up for financial shortcomings. The Milone Trading Company
capitalized on this by stockpiling old Trenni coins, they didn't get nearly
enough to make a huge profit on its face but they did get concessions by the
Kingdom in exchange for the old coins with extra value which they could then
melt down and reduce the silver content of.

100 old Trenni coins turned into 120 new Trenni coins ( as an example of what
happened) with barely anyone being aware of the devaluation. In the meantime
Milone got some concessions (like no taxes), a tidy profit (as did Lawrence),
The Kingdom of Trenni got to refill their coffers for whatever they needed it
for and 99% of the people kept their trust in the value of Trenni silvers
which prevented an economic collapse.

Near the end of the series of Light Novels a similar problem comes up. A noble
who owns a Silver, Gold and Copper mine and refineries decided to make his own
currency which was much purer and release it against the existing coinage
which were all less pure. Therefore his currency gave him enormous power by
allowing him to supplant the economic hold over the region in question and he
basically made himself Kingpin. People were trading existing Trenni and Lutes
for his purer silver and gold at a profit. By taking the hit in the short term
by trading pure coins for less pure existing ones he gave himself a
stranglehold on the trust in currency in the region. If everyone is using your
trusted coins and you control all manufacture of those coins you have all the
power. And since there was less and less old coinage the trust in their
valuation was nonexistent. It would be like trading US quarters (mostly made
of copper) for pure silver new coins. You'd make a lot of money exchanging
your quarters for the silver but eventually there'd be no quarters left and
the guy you sold them to controls what coins are made and make more any time
he wants and buy stuff for little cost on his part.

I hope that makes sense.


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To understand this plot you need to know that the monetary value for
everything in the world, including the world of _Spice and Wolf_ , follow the
principle of supply and demand, and Trenni silver coin is no exception. When
the demand suddenly increase but supply does not, its price would increase;
and similarly, when supply increase but demand does not, its price would
decrease. In the case of Trenni silver coin, its value is its purchasing
power. However, since Trenni silver coin is issued in such a large quantity,
it's very difficult to drastically change its value in a short time. Only
nobels or large merchant guilds have the power or wealth to effectively
influence its price.

The root cause for this plot is the royal house of Trenni's need for money.
They decides to achieve that by devaluing the currency (or inflation).
Basically, they milt the old coins, and by mixing other cheap metal, they use
the same amount of silver to make more coins. Such actions if planed properly,
could go unnoticed for a very long time. But since the noble cannot gather
large amount of old coins due to its financial crisis, they need someone else
to do it for them. Medio smelled the opportunity in this, because once they
have collected enough, they are able to negotiate an exclusive right to this
coin collection business, and monopoly = high profit.

However, rashly collecting coin of such a large amount is very expansive, and
has the risk of attracting the attention of rival merchant guild. Thus, to
reduce the cost and also keeping it a secret, Medios hired people like Zheren
to spread the rumor that the silver coin's silver content will increase
(basically saying that its purchase power will go up). Upon hearing this,
other small business owner like Lawrence would prefer to hold on to their
Trenni silver coin, thus the demand for that silver coin will increase, its
supply will decrease, because there are less Trenni silver coin being used on
market. Medios would then use the Trenni silver he has, exchange it to goods
or other currencies.

At the right time, Medios could release the truth, that the silver coin is
about to be devalued. Upon hearing this, those who stock piled Trenni silver
would panic and seek to spend their silver to avoid losses, creating a sudden
surge in Trenni silver coin entering the market. As the market is suddenly
flooded with Trenni silver, its supply increase and demand decrease. In that
short period of time, the silver coin will quickly loose purchase power.
Perfect time for Medios to collect large amount of "cheap" Trenni silver coin,
and negotiate the exclusive right with nobles.

Medios did this in a slow and hidden process, because if rival guild catches
wind of it, his entire plan would be spoiled. Which is why Medios tries so
hard to get rid of Lawrence - the whistleblower. For Lawrence, with Holo's
ability, he was able to tell that the silver content is actually decreasing,
he made a contract with Milone trading before telling them the plot. Which
allows Milone trading to collect large amount of silver coin in that short
window of time when the Trenni silver coin value decreases, and negotiated the
exclusive right before Medios did.

In the end, not wanting his years of preparation went in vain, Medios
purchased the right from Milone with a heavy price. Lawrence, received his
share from that purchase.


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