bimetallism


bimetallism

Monetary standard or system based on the use of two metals, traditionally gold and silver, rather than one (monometallism). In the 19th century, a bimetallic system defined a nation's monetary unit by law in terms of fixed quantities of gold and silver (thus automatically establishing a rate of exchange between the two metals). The system provided a free and unlimited market for the two metals, imposed no restrictions on the use and coinage of either metal, and made all other money in circulation redeemable in either gold or silver. Because each nation independently set its own rate of exchange between the two metals, the resulting rates of exchange often differed widely from country to country. When the ratio of the official prices proved different from the ratio of prices in the open market, Gresham's law operated in such a way that coins of only one metal remained in circulation. A monometallic system using the gold standard proved more responsive to changes in supply and demand and was widely adopted after 1867. See also exchange rate; silver standard.

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