Bimetallism is a monetary standard in which the value of the monetary unit is equivalent to a certain quantity of gold and to a certain quantity of silver. Such a system establishes a fixed rate of exchange between the two metals.
Characteristics of Bimetallism
- Both gold and silver money are legal tender in unlimited amounts.
- Highly popular use of currency in the early 1900s
- The government will convert both gold and silver into legal tender coins at a fixed rate for individuals in unlimited quantities. This rate is called free coinage because the amount is infinite, even if the government charges a fee.
The combination of these conditions distinguish bimetallism from a limping standard, where both gold and silver are legal tenders but only one is freely coined. For example, this system was prevalent in France, Germany, or the United States after 1873). Or trade money where both metals are freely coined but only one is legal tender, and the other is trade money. For example, most of the coinage of Western Europe from the 1200s to 1700s was trade money.
Bimetallism was intended to increase the supply of money, stabilize prices, and facilitate setting exchange rates. Some have argued that bimetallism was, by construction, unstable. Changes in gold-silver exchange were, in their eyes, leading to massive changes in the money supply. It was thus inherently flawed, and the advent of the gold standard was inevitable.