In the 19th century coins were often used for engraving. They are called 'Love tokens' by collectors and there is even an eBay category for collectors of such items.
Ancient coins were sometimes modified in similar ways. They seem to be very rare, I've only found a few references to them. In the academic literature I found a short piece from Schweizer Muenzblatter vol 19 1969 p. 14, “Amulettarige Uberarbeitung eines spatromischen Follis” and a three page article in English by Brooks Emmons Levy, “Another Converted Roman Coin?” (Schweizer Munzblatter vol. 32 (1982), p. 40.
The first article features a Roman follis, the second a 30mm provincial from Antioch featuring Mên.
Ken Steiglitz illustrates a Ptolemaic coin with similar modifications on his web site. I also found a Bosporan coin with similar mutilation in an old CNG catalog. The coin pictured above comes from FORVM.
I would be interested in seeing pictures of similar coins, or speculation on the why this was done. It strikes me that the few examples I've found come from very different times and places, but have similar grooves. This could be because grooves are the easiest thing to cut, so everyone who mutilates a coin naturally does grooves.
FORVM attributed my coin as being from the Amphipolis mint. I don't know much about Alexander bronzes, does anyone know if this is correct? What is the diagnostic?
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