Almost ironically, having a deflationary system is something one would really like to avoid if you thought about it. It only rewards hoarding. The king, with his hoard of gold, only grow's richer by the year. As long as he is cash flow positive, the supply upon which the peasants rely on to trade shrinks and therefore the value of each grain increases.
I, for one, don't think this system is one we should be rushing to return to.