Bimetallism

Bimetallism is the economic term for a monetary standard in which the value of the monetary unit is defined as equivalent to certain quantities of two metals, typically gold and silver, creating a fixed rate of exchange between them.

For scholarly purposes, proper bimetallism is sometimes distinguished as permitting that both gold and silver money are legal tender in unlimited amounts and that gold and silver may be taken to be coined by the government mints in unlimited quantities. This distinguishes it from "limping standard" bimetallism, where both gold and silver are legal tender but only one is freely coined (e.g., the moneys of France, Germany, or the United States after 1873), and from "trade" bimetallism, where both metals are freely coined but only one is legal tender and the other is used as "trade money" (e.g., most moneys in western Europe from the 13th to 18th centuries.) Economists also distinguish legal bimetallism, where the law guarantees these conditions, and de facto bimetallism, where gold and silver coins circulate at a fixed rate.

In the 19th century, there was a great deal of scholarly debate and political controversy regarding the use of bimetallism in place of the gold or silver standard (monometallism). Bimetallism was intended to increase the supply of money, stabilize prices, and facilitate setting exchange rates. Some scholars argued that bimetallism was inherently unstable owing to Gresham's law and the advent of a monometallic standard inevitable. Other scholars claimed that in practice bimetallism had a stabilizing effect on economies. The controversy became largely moot after technological progress and the South African and Klondike Gold Rushes increased the supply of gold in circulation at the end of the century, ending most of the political pressure for greater use of silver. It become completely moot following the 1971 Nixon shock, after which all of the world's currencies have operated as more or less freely floating fiat money unconnected to the value of silver or gold. Nonetheless, academics continue to inconclusively debate the relative use of the metallic standards.

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