The Ripple wiki says (emphasis added):

If the reference transaction should cost 10 millionths of a ripple, the "base fee" should be set to 10. This is the current value. This makes it very simple to adjust fees to keep them sensible -- just figure out how many millionths of a Ripple the reference transaction should cost and set that as the base fee.

Yes, and how does the system figure out what a reference transaction would cost?

It would be great to know how the transaction fee is determined and how it is adjusted in response to deflation (rising value of XRP or falling supply of the units).

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    Manish, you're flooding a lot of Ripple questions onto here at a higher rate than people can vote on them or answer. Can I ask why? – eMansipater Apr 26 '13 at 8:39
  • @eMansipater Yes, sir, you may ask, and I can tell you that I was reading the specs and I posted the questions as they popped into my head. Is that bad form? I could just write down my questions in a text editor and post them at intervals of an hour or two, if that's better. I certainly didn't mean to "flood" anything. – Manish Apr 27 '13 at 22:40
  • no real problem. Sometimes flooding a lot of questions is an indicator that someone doesn't quite get how to use Stack Exchange so I was curious where the questions were coming from. Would you say that the sorts of things you were asking about are missing holes in the existing Ripple documentation, or more just that you were using this as a way to kind of get Ripple into your head? Generally Stack Exchange works well for individual answers where someone will take the time to give an an-depth answer. With the rapid fire style you might have better luck on the Ripple forums. – eMansipater Apr 28 '13 at 18:44
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    (You'll note that although David Schwartz was able to keep up with basic answers he didn't really have time to answer all the questions in depth.) Stack Exchange shines best when someone can take a few specific questions and answer them so effectively that anyone in the future of the internet would prefer that answer to any other treatment of the question. When questions are getting fired off too fast, it's hard for the experts to provide that level of detail and quality. That's all. – eMansipater Apr 28 '13 at 18:46
  • @eMansipater Frankly, I don't know what you're talking about. If you can point me to one question I posted about Ripple in those few minutes that didn't meet the quality standards of this site, then I'll admit you have a point. If the documentation already contained the answer, then I wouldn't be asking the question. "No real problem." OK, case closed! – Manish Apr 30 '13 at 8:57

The base fee is contained in the ledger and can only be changed by a pseudo-transaction that gets into the consensus set. It's managed by consensus the same way the reserve levels are.

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