bimetallism

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bimetallism

(bīmĕt`əlĭz'əm), in economic history, monetary system in which two commodities, usually gold and silver, were used as a standard and coined without limit at a ratio fixed by legislation that also designated both of them as legally acceptable for all payments. The term was first used in 1869 by Enrico Cernuschi (1821–96), an Italian-French economist and a vigorous advocate of the system. In a bimetallic system, the ratio is expressed in terms of weight, e.g., 16 oz of silver equal 1 oz of gold, which is described as a ratio of 16 to 1. As the ratio is determined by law, it has no relation to the commercial value of the metals, which fluctuates constantly. Gresham's law, therefore, applies; i.e., the metal that is commercially valued at less than its face value tends to be used as money, and the metal commercially valued at more than its face value tends to be used as metal, valued by weight, and hence is withdrawn from circulation as money. Working against that is the fact that the debtor tends to pay in the commercially cheaper metal, thus creating a market demand likely to bring its commercial value up to its face value. In practice, the instability predicted by Gresham's law overpowered the cushioning effect of debtors' payments, thereby making bimetallism far too unstable a monetary system for most modern nations. Aside from England, which in acts of 1798 and 1816 made gold the standard currency, all countries practiced bimetallism during the late 18th cent. and most of the 19th cent.

Bibliography

See J. L. Laughlin, The History of Bimetallism in the United States (1897, repr. 1968).

Bimetallism

 

monetary system under which the role of money is assigned legislatively to two metals—gold and silver—and coins minted from both metals perform all the functions of money without limitation and circulate on an equal basis. Bimetallism, inherited from the Middle Ages, was widespread in Western Europe in the 16th to 19th centuries, since the development of capitalism placed ever-increasing demand on the monetary material—gold and silver. The mining of silver in Europe and the influx of it from America, in turn, promoted the spread of bimetallism. Two varieties of bimetallism existed—parallel bimetallism and dual bimetallism. The parallel-currency system, under which the value ratio between gold and silver is established spontaneously in accordance with the market value of gold and silver, suited an earlier historical period and was inconvenient for computations, since the ratio of the value of the metals, and hence the ratio of the prices of goods, was in continual flux. Under the dual-currency system, which was established in a number of countries beginning in the 18th and 19th centuries, their governments determined the value ratio (parity) between gold and silver. For instance, in 1865 this ratio in European countries was 1:15.5. The minting of gold and silver coins and their acceptance in various transactions were carried out according to the established ratio; if one metal proved to be undervalued by the government, it went out of circulation and was exported abroad, or, conversely, it came in from abroad if it was overvalued. For example, in England in the 16th to 18th centuries, gold, which was ultimately overvalued by the government, remained in circulation, while undervalued silver disappeared from circulation. The dual-currency system existed in France from the beginning of the 19th century and in the USA from the end of the 18th century until 1873, when the silver dollar still retained its unlimited power as the means of payment although the open minting of silver had been abandoned. In conditions of bimetallism, bank notes were exchanged, according to the wishes of the banks of issue, for either gold or silver, so that the country’s currency reserves consisted of two metals. The last step of bimetallism in Europe was the creation of the Latin Monetary Union (1865).

Bimetallism does not meet the needs of a developed commodity economy and contradicts the very nature of money as a single commodity designed to perform monetary functions. The contradictory nature and instability of bimetallism as a monetary system, the increasing gap between the growth of silver production and the decline in its value beginning in the 1870’s (the ratio of silver to gold was 1:18 in 1880 and 1:40 in 1907), and several other factors caused the transition to gold monometallism.

M. IU. BORTNIK