Bimetallism is ... Bimetallism: a description, features and interesting facts

Bimetallism is a monetary standard and a monetary system that involves the simultaneous use of gold and silver. There are two types of monetary systems. The first is the metal standard. It is also of two types. This is bimetallism and monometallism. The second is a paper and credit standard. The modern monetary system applies to the latter kind. But today we will talk about bimetallism as historically the first monetary standard, its shortcomings, historical development and peculiarities in different countries.

Characteristic

What is the monetary system? Bimetallism, monometallism and finally the paper and credit standard are three historical stages of its evolution. In the 19th century, states fixed the value of their coins in gold and silver. Thus, the rate of their currencies during this period was fixed. Bimetallism implies simultaneous use of gold and silver in coining. With a double standard, there are no restrictions on the creation of coins, if there is raw material for their manufacture. All money in circulation with him is backed up with precious metals. The main problem with using this system was that each state independently determined the exchange rate of gold relative to silver. Therefore, it could differ significantly in one country from another.

In 1865, an attempt was made to create a single international bimetallic system. For these purposes, France, Belgium, Italy and Switzerland joined together in the Latin Monetary Union. Parity was established between the two metals. However, the system lasted only a few years, which was due to the monetary machinations of Italy and Greece and the French-German war of 1870-1871.

In 1867, an international conference was held in Paris, where most of the delegations voted for the gold standard, that is, monometallism. Soon all the others joined the system, because in practice they understood what bimetallism is and what are its main shortcomings. The most stable form of it was a system with parallel currency, but it was not widely used. As for the complete bimetallism, then sooner or later he himself outlives himself. This is due to the fact that the fixed official rate does not reflect the situation on the market.

Features

Thus, the following main characteristics of this standard are distinguished:

• Functions of money carry out two metals. Most often it's gold and silver.
• Coins are made of both metals.
• Free parity between gold and silver.
• Circulation of coins from both metals occurs simultaneously and in parallel.
• The price of goods is set in gold and silver.

There are such types of bimetallism:

• Full . Its second name is the "double currency system". Full bimetallism was widespread in the past. It is his features that underlie the general definition of the whole system. All other species exclude one of its features.
• Parallel .
• Partial . It is also called the "lame" currency system.

Common to all types of bimetallism is the fact that in circulation are both coins of gold, and money from silver.

Full bimetallism

So, bimetallism is a monetary system characterized by the following features:

• The legal tender is both gold and silver coins. The price of one product is fixed in both metals.
• The coinage of coins from both gold and silver is free and complete.
• The state (the union of countries) establishes a parity between metals.

In this form, bimetallism existed in the United States. In 1792 there was fixed the ratio of gold to silver - 1 to 15. The parity changed several times until the end of the 19th century, when the standard in the United States was changed. Full bimetallism was also characteristic of France. Initially, the country set a parity of gold to silver - 1 to 15.5. However, it was changed several times, but still did not keep up with the fluctuations in the market. In 1874 in the country the coinage of silver was chased. The double currency system has outlived itself. This is due to the fact that one metal always displaces the other at a fixed parity. If the price of gold rises, then people should better pay with silver. This leads to the fact that the influx of the latter begins on the market, causing it to be even more devalued. This is exactly the case with increasing prices for silver. Only in this case there is an influx of depreciating gold on the market.

Another drawback of such a system is related to the operation of Gresham's law. Over time, more and more incomplete money becomes available in circulation. This is due to the fact that during financial difficulties, it is easiest for the state to reduce the content of precious metals in coins while retaining their previous nominal value. The consequence of such machinations is an increase in prices and an increase in the saving rate.

Parallel Bimetallism

This is a system in which:

• Coinage of both metals is free and occurs without restrictions.
• The state does not establish a course of gold in relation to silver.
• Coins from both metals are in circulation.

The parallel currency system was less common than full bimetallism. It existed in many Western European countries in the 15-17th centuries. Later, all of her refused to Hanover. Here it lasted until 1857.

The parallel currency system eliminates some of the disadvantages of bimetallism in its full form. The absence of a rigid parity between gold and silver allows both coins to be freely traded and exchanged at a market rate. However, the main inconvenience with this standard is the need to consolidate all prices in both metals. Sometimes states differentiated the sphere of use of gold and silver. For example, the former was used for international settlements, and the second was used in the domestic market.

System of "lame" currency

This monetary standard is characterized by the following features:

• The state legislatively fixes the ratio between the two metals.
• Coins of gold and silver are simultaneously in circulation.
• However, free coinage is allowed only for one of the metals.

On these principles, the standard underlying the Latin Union between France, Belgium, Italy, Switzerland and Greece was built. However, in the final analysis, there was a problem with silver five-franc coins. Gradually the whole world came to monometallism. However, today, gold no longer performs monetary functions. The modern monetary system is a paper credit.

Economic analysis

In the early 1990s, the study of this system involved the well-known economist Milton Friedman. He concluded that bimetallism is the reason for the instability of prices in the US in 1873. According to Fridman, this system has brought long-term damage to the American economy. He believed that bimetallism was a huge mistake, which led to extremely unfavorable consequences for the United States.

In Argentina

In 1881, the country began currency reform. From July 1883 the bimetallic standard came into effect. Gold and silver pesos appeared in circulation. Paper money was equated with them. Five coins were involved in coinage in Argentina. This standard existed in the country only 17 months. As early as December 1884, banks began to refuse to exchange banknotes for gold at the established rate.

In France

In 1803, a law was passed in the country, according to which the franc could be exchanged for 5 grams of silver. A course of gold was set separately. The kilogram of this metal cost 3100 francs.

In Great Britain

Bimetallism was widely used in medieval England. However, the coinage of silver was banned as early as the beginning of the 18th century, when a gold standard was introduced in the country. However, for many years, supporters of bimetallism favored his return, especially in times of crisis.

In the United States of America

The US Constitution consolidated gold and silver as official means of payment with a floating rate. However, in 1792 Secretary of the Treasury Alexander Hamilton proposed to consolidate the ratio of silver to gold as 15 to 1. Corresponding changes were made to the legislation. In 1834, silver depreciated slightly, and the rate was fixed at 16 to 1. After the adoption of the Law on coinage in 1873, the United States practically stopped using this standard, but it was formally abolished only at the beginning of the 20th century. According to the well-known economist Milton Friedman, bimetallism has caused considerable damage to the United States.