Difference between revisions of "Bimetallism"
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Bimetallism is a monetary standard which establishes a fixed rate of exchange among two metals; most commonly gold and silver. The value of the monetary unit, in this case, is defined as equal to a certain quantity of gold or silver - both coins are legal tender. According to Redish, bimetallism's merit is that it "enabled currencies to have coins for high and low valued standards without having exceptionally large or small coins," but the main drawback is that the relative changes in gold and silver can easily disrupt the system. This implies Grasham's law - bad money drives out good money - and we can anticipate a return into a monometallic standard. This is indeed what happened in Europe by the end of the nineteenth century, and the main reason for this was increasing trade and globalization: if the US wants to trade with Britain, which is on the gold standard, it would be more beneficial for them to adopt the gold standard. (network effect) France, for example, moved into the gold standard from bimetallism in the 1840s with the new discoveries of gold. | Bimetallism is a monetary standard which establishes a fixed rate of exchange among two metals; most commonly gold and silver. The value of the monetary unit, in this case, is defined as equal to a certain quantity of gold or silver - both coins are legal tender. According to Redish, bimetallism's merit is that it "enabled currencies to have coins for high and low valued standards without having exceptionally large or small coins," but the main drawback is that the relative changes in gold and silver can easily disrupt the system. This implies Grasham's law - bad money drives out good money - and we can anticipate a return into a monometallic standard. This is indeed what happened in Europe by the end of the nineteenth century, and the main reason for this was increasing trade and globalization: if the US wants to trade with Britain, which is on the gold standard, it would be more beneficial for them to adopt the gold standard. (network effect) France, for example, moved into the gold standard from bimetallism in the 1840s with the new discoveries of gold. | ||
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| + | Redish, Angela. “Bimetallism.” In EH.net Encyclopedia. http://eh.net/encyclopedia/article/redish.bimetallism | ||
Latest revision as of 10:50, 29 October 2010
Bimetallism is a monetary standard which establishes a fixed rate of exchange among two metals; most commonly gold and silver. The value of the monetary unit, in this case, is defined as equal to a certain quantity of gold or silver - both coins are legal tender. According to Redish, bimetallism's merit is that it "enabled currencies to have coins for high and low valued standards without having exceptionally large or small coins," but the main drawback is that the relative changes in gold and silver can easily disrupt the system. This implies Grasham's law - bad money drives out good money - and we can anticipate a return into a monometallic standard. This is indeed what happened in Europe by the end of the nineteenth century, and the main reason for this was increasing trade and globalization: if the US wants to trade with Britain, which is on the gold standard, it would be more beneficial for them to adopt the gold standard. (network effect) France, for example, moved into the gold standard from bimetallism in the 1840s with the new discoveries of gold.
Reference:
Redish, Angela. “Bimetallism.” In EH.net Encyclopedia. http://eh.net/encyclopedia/article/redish.bimetallism
