Bimetallism

Bimetallism, monetary policy based on the use of two metals, usually gold and silver, as legal tender, coined without limit (free coinage), and equalized by law in a fixed ratio. The ratio is expressed in terms of weight, usually with a fixed number of ounces of silver being made equal to 1 ounce of gold. Determined by law, this ratio does not necessarily reflect the relative abundance of the metal and therefore may be changed by law. Weight ratio has no relation to the commercial ratio (value) of the metals, which may fluctuate.

Adherents of bimetallism maintain that the fixed legal ratio prevents nearly all fluctuations in the commercial values of the two metals and hence tends to stabilize the prices of commodities and to simplify foreign exchange. Most economists, however, are opposed to bimetallism on the grounds that the cheaper metal, which is valued commercially at less than its face value, drives the more precious metal from circulation, in accordance with Gresham's Law.

Practical difficulties, in the maintenance of concurrent circulation of the two metals, have led one nation after another to adopt a system of monometallism, with gold as its basis. In England the single gold standard, actually in operation since 1699, was finally legalized by successive steps in 1717, 1774, 1778, and 1816. The United States adopted the double standard, as urged by Secretary of the Treasury Alexander Hamilton, in 1792. France, in 1801, instituted a plan to make a five-franc silver piece standard money, but after the discovery of gold in Australia and California and the fall in the price of gold relative to silver, the French law favoured the coinage of gold. In 1871 Germany, formerly operating on a silver basis, adopted the gold standard as one element in the unification of coinage following establishment of the German Empire. Thereafter the most important European nations abandoned the double standard for the single gold standard.

Bimetallism was abandoned in the United States in 1873. The Bland-Allison Act of 1878, however, allowed a limited number of silver dollars to be coined, thus creating the system termed limping bimetallism, a monetary system partially dependent on the use of silver but primarily dependent on gold. Bimetallism was a major political issue in France and other European nations. It became a crucial issue in the United States during the last quarter of the 19th century, a period characterized by steadily falling prices and a commercial depression. The policy of limping bimetallism was ended by the Gold Standard Act of 1900, and with the gradual improvement in economic conditions, the issue was forgotten. It was revived, however, in the 1930s, following the depression of 1929, and although true bimetallism was not established, silver was added to gold as the US monetary base; the amount of silver for which a silver certificate could be redeemed, however, had a lower commercial value than the monetary value of the certificate.

Bimetallism has disappeared progressively from national currencies worldwide along with the gold standard and the entire principle of a monetary sytem based on interconvertibility with a precious metal.