Bimetallic Standard and bimetallism : an introduction

What is Bimetallism ?

A bimetallic standard is a monetary standard where the monetary unit is defined as consisting of either a certain amount of a metal or a certain amount of another, with the monetary authority being ready at all times to coin either metal at the legal price. For example, in the United States for the greater part of the 19th century the dollar was defined as consisting either of 22.5 grains of gold or 371 grains of silver (a grain is 0.065 grams). People could bring gold or silver bars at the Mint (the agency responsible for coining money) and they would get gold or silver dollar coins in exchange. More in the

This standard has several properties which explain in the next 4 slides. No deep knowledge of macroeconomics is assumed and I have made every effort to keep the matter entertaining and interesting. Don't forget to check the slides, below the text. They are the best in this subsite.

The legal price is fixed ...

Silver Dollar

Legal Gold price of silver
or how many tons of silver
you need to buy one ton of gold

16 :1

Gold Dollar

371 grains
of pure silver

<= ONE DOLLAR IS DEFINED AS =>

23.5 grains
of pure gold

... but the market price changes.

	Market Gold price of silver From 1837 to the Civil War 15 :1
One silver dollar		One gold dollar
1 $	<= VALUE AS A LEGAL TENDER=>	1 $
You can pay your debt either in gold or in silver at the legal ratio
1.07 $	<= VALUE OF METAL IF MELTED=>	1 $
You will thus pay in the cheapest coin and melt or hoard the other.

Whenever the market price of silver in terms of gold is sufficiently far from the legal ratio, the economy switches to a monometallic standard, using the relatively cheapest metal as money and removing the other from circulation.