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A Model of Bimetallism

  • Francois R. Velde
  • Warren E. Weber

Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it desirable? In our model, the amounts of each metal are split between coined metal, satisfying a cash-in-advance constraint, and uncoined metal, yielding utility. The ratio of the monies in the cash-in-advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states indexed by the constant exchange rate of the monies. Bimetallism is not desirable: among steady states, welfare under monometallism is higher than under any bimetallic equilibrium. Long-run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio, but its sudden collapse in 1873 remains a puzzle.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 6 (December)
Pages: 1210-1234

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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1210-1234
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  1. Chau-nan Chen, 1972. "Bimetallism: Theory and Controversy in Perspective," History of Political Economy, Duke University Press, vol. 4(1), pages 89-112, Spring.
  2. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
  3. C. C. Patterson, 1972. "Silver Stocks and Losses in Ancient and Medieval Times," Economic History Review, Economic History Society, vol. 25(2), pages 205-233, 05.
  4. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
  5. Sargent, Thomas J & Velde, Francois R, 1999. "The Big Problem of Small Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 137-61, May.
  6. Oppers, Stefan Erik, 2000. "A model of the bimetallic system," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 517-533, October.
  7. Oppers, S.E., 1994. "Was the Worldwide Shift to Gold Inevitable? An Analysis of the End pf Bimetalism," Working Papers 351, Research Seminar in International Economics, University of Michigan.
  8. Friedman, Milton, 1990. "The Crime of 1873," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1159-94, December.
  9. Flandreau, Marc, 1995. "An Essay on the Emergence of the International Gold Standard, 1870-80," CEPR Discussion Papers 1210, C.E.P.R. Discussion Papers.
  10. Angela Redish, 1995. "The persistence of bimetallism in nineteenth-century France," Economic History Review, Economic History Society, vol. 48(4), pages 717-736, November.
  11. Dowd, Kevin, 1996. "The Analytics of Bimetallism," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(3), pages 281-97, September.
  12. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(04), pages 789-805, December.
  13. Garber, Peter M, 1986. "Nominal Contracts in a Bimetallic Standard," American Economic Review, American Economic Association, vol. 76(5), pages 1012-30, December.
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