Last Updated on January 23, 2025
Bimetallism is a monetary system where both gold and silver are money, and the critical thing is the ratio between the two.
Before we had the fiat standard, we had the gold standard.
And before we had the gold standard, we had bimetallism.
It is an ancient monetary system that continued until relatively recently. It was only in the 1870s that silver lost its monetary properties and gold emerged as the single monetary standard.
Bimetallism in the Persian Empire
The most famous Persian coin was the daric. Some scholars think it was named after King Darius I, the successor to Cyrus the Great, others think it comes from the Old Persian word for gold.
The Persians operated a bimetallic system with the gold daric circulating alongside the silver siglos. One gold daric was worth 20 silver sigloi.
The Persians had adopted the concept of standardised gold coinage from the Lydians whom they conquered.
The daric became the dominant currency in the ancient world and was used extensively within the Persian Empire and across the Mediterranean.
It remained the dominant currency until the Persians were defeated by Alexander the Great.
Bimetallism in Ancient Rome
The primary currency in Ancient Rome was a silver coin, the denarius.
But there were significant gold coins circulating as well. First there was the aureus, originally worth 25 denarii.
This coin did exist during the days of the Republic, however it was never minted in large quantities. It is primarily associated with Julius Caesar who decided to mint it in larger amounts in order to pay his soldiers.
The aureus continued to be used as the standard gold coin in the early days of the empire.
However both the aureus and the denarius were debased over several centuries by lowering the metal content of the coins.
A great monetary reform was undertaken by Emperor Constantine who permanently replaced the aureus with the solidus, a new gold coin equivalent to 275,000 debased denarii.
He was able to maintain the fixed weight of the solidus and avoid further debasement and was therefore successful in bringing some stability to the Roman economy.
Bimetallism in Britain
Britain established the silver pound sterling as a national currency in 928.
Henry III attempted to introduce gold coinage in 1257 but this was unsuccessful. Edward III tried again in 1344 with the English florin, also known as the double leopard, but this was also unsuccessful.
In the same year Edward III tried again with the gold noble and this time he succeeded. The noble circulated as currency for 120 years.
Britain minted various other coins including the Angel, the Unite and the Laurel.
In 1663, a new gold coin called the guinea was first minted under Charles II. This coin would have a significant role to play in the history of bimetallism.
In 1717 Isaac Newton, who was Master of the Mint, fixed the official silver price of the gold guinea at 21 shillings.
He unintentionally overvalued gold and undervalued silver, which led to outflows of silver and inflows of gold in a process known as Gresham’s Law.
This had the effect of putting Britain on a de facto gold standard even though nominally she was on a bimetallic one.
This act reflects the major flaw with the bimetallic standard. No government or monetary authority can ever perfectly set the silver/gold ratio. Supply, demand and market pricing mean the correct ratio is ever-changing. When a fixed ratio is set then inevitably one must be overvalued and the other undervalued.
A later monetary reform in 1816 formally ended bimetallism and put Britain on a formal gold standard. The pound became defined as a weight in gold rather than silver. The gold guinea was replaced by the gold sovereign.
Bimetallism in the USA
The United States established a bimetallic monetary system right from the outset.
In 1792 the Coinage Act was passed which defined the dollar as a weight in silver and established a silver/gold ratio of 15:1.
The first gold coins were the Eagle ($10), half eagle ($5) and quarter eagle ($2.50).
The 1792 rate of 15:1 was quite close to the market rate at the time. However, over time, the market drifted away from the government ration. New supplies of silver came to the market faster than gold, which meant the market value of silver should have dropped. By maintaining the 15:1 ratio the government rate overvalued it.
In 1834 the US government adjusted the rate to 16:1. This had the opposite effect of undervaluing silver and overvaluing gold as the market rate was somewhere in between. As according to Gresham’s law, the undervalued silver disappeared from circulation.
What had happened in Britain now happened in the USA as the nation was effectively on a de facto gold standard.
The United States formally recognised this in 1873 in an act that silver advocates called the Crime of 1873.
This began a long political war between advocates of the gold standard and advocates of bimetallism.
With Germany also adopting a gold standard in 1873 the effect was to begin the process of demonetising silver. Since the late 19th century it has seen a significant devaluation relative to gold.
Conclusion
The journey of bimetallism throughout history reflects the complex evolution and development of monetary systems.
For much of human civilization we operated on some form of bimetallic system. As global commerce developed in the late 19th century the world moved onto the gold standard.
As we fully embrace the digital age there is a strong case to be made that we will end up on a Bitcoin standard.
