Nowadays metal content is almost completely irrelevant to coin in circulation, and the precious metal content of coins does not determine their value.
However, it worths to remember the rationale behind maintaining high levels of precious metals within the national coinage for so many centuries: metal content constraints money creation and, consequently, money debasement and money inflation.
To illustrate the point, I leave here a quote from Schumpeter History of Economic Analysis (Routledge, 1987) (the context was the return of the UK to the gold standard after the Napoleonic wars):
At present we are taught to look upon such policy as wholly erroneous — as a sort of fetishism that is impervious to rational argument. We are also taught to discount all rational and all purely economic arguments which may actually be adduced in favour of it. But . . . there is one point about the gold standard which would redeem it from the charge of foolhardiness, even in the absence of any purely economic advantage . . . An ‘automatic’ gold currency is part and parcel of a laissez- faire and free trade economy . . . It links every nation’s money rates and price levels with the money rates and price levels of all the other nations that are ‘on gold’. It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation and, in general, to precisely all those policies that violate the principles of economic liberalism. This is the reason why gold is so unpopular now, and why it was so popular in the bourgeois era. It imposes restrictions upon governments or bureaucracies which are much more powerful than parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom.
So, a metallic standard limits the extent to which the sovereign can create money, and it is that very limitation which forms the basis of confidence in the currency.
Since that currency derives its value from its relative rarity, any increase in supply destroys its value.
* This note is based on The Legal Concept Of Money by Simon Gleeson.
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