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The prevalence of the gold standard meant that there was, in effect, a single world money called by different names in different countries. Currencies were exchanged at a fixed price into the currency of another country (usually the British pound sterling) that was itself convertible into gold. In a few countries a minor variant prevailed-the so-called gold exchange standard, under which a country’s reserves included not only gold but also currencies of other countries that were convertible into gold. Gold coins circulated in most of the world paper money, whether issued by private banks or by governments, was convertible on demand into gold coins or gold bullion at an official price (with perhaps the addition of a small fee), while bank deposits were convertible into either gold coin or paper currency that was itself convertible into gold. The early 20th century was the great era of the international gold standard. By the final decades of the century, silver remained dominant only in the Far East (China, in particular). Germany adopted gold as its standard in 1871–73, the Latin Monetary Union (France, Italy, Belgium, Switzerland) did so in 1873–74, and the Scandinavian Union (Denmark, Norway, and Sweden) and the Netherlands followed in 1875–76.
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This price change, plus the dominance of Britain in international finance, led to a widespread shift from a silver standard to a gold standard. The great gold discoveries in California and Australia in the 1840s and ’50s produced a temporary decline in the value of gold in terms of silver. But how much else do you know about the history of currency? Find out with this quiz. You know that money doesn’t grow on trees. Then in 1834 the ratio was altered to 16 to 1, which overvalued gold, so gold again became the standard. This ratio overvalued silver, so silver became the standard. In the United States a ratio of 15 ounces of silver to 1 ounce of gold was set in 1792. In Britain, on the other hand, the ratio established in the 18th century on the advice of Sir Isaac Newton, then serving as master of the mint, overvalued gold and therefore led to an effective gold standard. This happened in most of the countries of Europe, so that by the early 19th century all were effectively on a silver standard.
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In this example silver, the cheaper metal in the market, “drove out” gold and became the standard. Holders of gold could instead profit by buying silver in the market, receiving 16 ounces for each ounce of gold they would then take 15 ounces of silver to the mint to be coined and accept payment in gold.Ĭontinuing this profitable exchange drained gold from the mint, leaving the mint with silver coinage. If, for example, the quantity of silver designated as the monetary equivalent of 1 ounce of gold (15 to 1) was less than the quantity that could be purchased in the market for 1 ounce of gold (say 16 to 1), no one would bring gold to be coined. As the prices changed, the phenomenon associated with Gresham’s law assured that the bimetallic standard degenerated into a monometallic standard. Some adopted a national bimetallic standard, with fixed weights for both gold and silver based on their relative values on a given date-for example, 15 ounces of silver equal 1 ounce of gold ( see bimetallism).
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As governments came increasingly to take over the coinage and especially as fiduciary money was introduced, they specified their nominal (face value) monetary units in terms of fixed weights of either silver or gold. In the Middle Ages, when money consisted primarily of coins, silver and gold coins circulated simultaneously.