Home Finance Bimetallism and Symmetallism – Commodity versus Paper Currency

Bimetallism and Symmetallism – Commodity versus Paper Currency

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bimetallism

Bimetallism and Symmetallism has been deliberated here as it relates monetary units and commodity currencies. We take a closer look at various monetary standards and exchange.

Bimetallism Definition

A bimetallic standard is one in which the monetary unit is defined in terms of two metal (e.g. silver and gold) at a legally fixed ratio for one another.

The requirement for such a standard are the same as those of gold standard, with the addition that all the provisions regarding redeem-ability , purchase and sale, import and export apply to silver as well as to gold.

E.g. By the American Coinage Act 1792, 27.75 grains of fine gold were equated to 371.25 grains of silver i.e. ratio of 15.1.

Critics of commodity standard agreed that bimetallism encouraged the expansion of world trade more than gold standard.

Bimetallism Contributions

It was also argued that bimetallism contributed more to price stability and reduced price fluctuations and stabilized both domestic and international prices.

In 1803 France adopted this system, while Belgium, Italy and Switzerland joined in 1865. But in 1874 those European countries abandoned it.

Symmetallism Defination

Under this system or standard, a single money will be the combination of metals (rather than a single metal) in legally established proportions.

The term “Symmetallism”  is credited to Alfred Marshall, it was a proposal intended to overcome the monetary unit redeemable in gold or silver coins in specified ratios; bimetallism allowed redemption in gold or silver coins in a fixed ratio to one another.

In symmetallism coins containing both gold and silver in specified proportions between the two metals has to be maintained.

In this, Alfred Marshall reasoned that it would be possible to use the combined supply of both metal as a basis for world currency.

It limitation was inability to remove or protect us from excess of gold and also its practicability will be difficult.

Non Commodity Or Paper Currency Standards

A non commodity standard is usually legal tendency money not redeemable in gold or silver.

In the early centuries of non commodity standard, paper money were convertible into gold or silver coins or bullion of specified weight on demand.

Paper money today is not convertible into coins of a precious metal or bullion, therefore its in-convertible.

The paper standard dates from the more recent time particularly the post depression of the 1930’s.

Many nations under the metallic standard were to learn through painful experience that money wont always automatically manage itself in a satisfactory manner.

Thus a monetary standard of the in convertible type evolved. This standard has the following essential features:-

  1. Absolute in convertibility of circulating money into gold or silver or combination of the two.
  2. The definition of the basic monetary unit by a reference to the precious metal.
  3. The fiat or paper standard can be controlled by legislation. E.g. the Exchange Control Act.
  4. There is no free import or export.

Merits of the Paper Standard

  1. Price stability – the paper standard ensures price stability, because the monetary units can stabilize the price level by maintaining equilibrium between demand and supply of money by an appropriate monetary policy.
  2. The paper money is cheaper than gold or silver standard
  3. It is portable, easy to store, count and replaceable

Demerits of Paper Standard

  1. It has inflationary bias and exchange instability
  2. There is lack of confidence and durability in paper standard
  3. The use of paper money brings about uncertainty in the economy and also not automatic in functioning.

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