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and the metal commercially valued at more than its face value tends to be used as metal, valued by weight, and hence is withdrawn from circulation as money.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

References in periodicals archive ?
Bimetallism faded with the vast expansion of gold supplies and the agricultural boom just after the turn of the century.
Martin, 1973, "1853: The End of Bimetallism in the United States," Journal of Economic History 33.
Coming from a senator representing South Carolina, Tillman's intemperate remarks on secession and section offered opponents of bimetallism an opportunity to attack free silver as both financially unsound and as a new threat to national unity.
I use a model to understand how bimetallism could have been viable in the first place, why it disappeared so suddenly, and whether the United States could have taken another road.
Like many others, they have accepted uncritically the old story about the author of The Wizard of Oz being a supporter of William Jennings Bryan and bimetallism during the 1896 campaign.
With the growing size of participating states and the transformation of money, thanks to the end of bimetallism and the wider use of bank notes and deposits, the objectives and the practical management of monetary unions became more complex and more political.
While Bitter is right in stressing that few things are inevitable, it does not follow that greenbackism, bimetallism, corn banking would have limited big business and favored a balanced agrarian-artisan republican economy.
Hence the drive to restore the dollar to its pre-war parity with gold may have entailed more deflation than would have been expected from o resumption of bimetallism which, presumably, would have meant more rapid money supply growth (see Friedman, 1990).
The best-known rule was the gold standard, but other proposed rules included bimetallism, commodity standards, and Irving Fisher's compensated dollar.
Surely, the currency risk was already low under preceding bimetallism.
18 Gould, 241, describes how bimetallism produced a situation in which "given monetary authority got out of step" with the market.
It was William Jennings Bryan, a gifted lawyer, journalist, orator, and tireless political organizer, who stimulated, bullied, cajoled, and inspired all the disparate factions interested in the cause of silver into fighting single-mindedly for the official preservation of bimetallism.