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Bimetallism: Definition & Overview

Instructor: Christina Boggs

Chrissy has taught secondary English and history and writes online curriculum. She has an M.S.Ed. in Social Studies Education.

In this lesson, you will learn about the monetary system called the bimetallism. You will learn the history of its use, as well as the benefits and issues that it caused.

Definition

Do you know what the value of a dollar is? You might only have an idea of what you can buy with it - a stick of gum, or a candy bar maybe. But two hundred years ago, the value of that dollar was equal to a certain amount of gold or silver.

If you're familiar with prefixes, you know that 'bi-' means two. For example a bicycle has two wheels. Based on the prefix, you've probably figured out that 'bimetallism' means two metals, but what are those metals used for?

Bimetallism is a monetary system where the value of the money is based on two different metals. Usually, these two metals are gold and silver. Bimetallism became an alternative to the gold standard where the value of money was based on how much gold a country had in its reserves and how much that gold was worth.

How the System Works

Of the two metals, gold is considered to be more valuable. In a bimetallic system, the value of gold and silver is tied to each other. For example, the value of one ounce of gold might be worth 15 ounces of silver. The value ratio of the two would be 1 to 15.

Governments would then use gold and silver to mint coins to use as money. If the government decided to print paper money, that paper money could be traded in for the equivalent value of silver or gold.

People in favor of bimetallism claimed it was economically beneficial because it allowed countries to keep more precious metal in their reserves. Countries could also put more currency to circulation as a result. This all sounds pretty good, right?

Political cartoon depicting the battle between the gold standard and bimetallism
Bimetallism Cartoon

In reality, bimetallism had more challenges than benefits. Remember that relative value of gold to silver? In the United States, the U.S. Mint set the value between the two, however the price they had set for gold was actually less than market value. The market value was affected by supply and demand, unlike the government standards, so people who sold their gold directly to the U.S. government received less money than if they had sold it to some guy on the street.

The other big issue stemmed from different countries using bimetallism. Each country set a different value for gold and silver. That impacted the exchange rates between countries. Gold could be worth more in the United States than in France, while silver in France could be worth more than silver in Germany. For bimetallism to work effectively, there needed to be some sort of international cooperation.

In 1865, several European countries (Belgium, France, Greece, Italy, and Switzerland) formed the Latin Monetary Union to create a system of standardization. However, the Latin Monetary Union fell apart for two reasons:

  • two of the countries were caught manipulating currency values
  • war broke out between Germany and France

Bimetallism in the United States

The U.S. government adopted a bimetallic system in 1791 and began minting gold and silver coins. After just 15 years of minting silver coins, President Thomas Jefferson ended their use because most of the coins were being used in other countries, not the United States. The country also ran into issues with discrepancies between mint value and market value of gold.

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