de facto adoption of a goldcurrency in 1873, it would take effect six years later. Thus, with the United Kingdom already on gold, by the end of the 1870s the world’s leading industrial nations all used goldcurrencies. By contrast, silver—which, until 1873, had been on an equal footing with gold—became a secondary currency metal used mostly by peripheral countries.
The causes behind this shift have long been debated. In a seminal contribution, Flandreau (1996) identified the suspension of silver coinage by the French treasury in October 1873 as the critical
, 2000 , Velde and Weber, 2000 ).
2. Large gold discoveries 1848–51 in California and Australia greatly increased the global supply of gold , and hence caused the share of goldcurrency in France (and other bimetallic countries) to surge. According to Flandreau (1995) , the share of gold in France’s specie currency circulation increased from 30 percent in the early 1850s to more than 80 percent in the late 1860s. With Britain and the US (prior to the US civil war) on gold and France mostly using gold, gold specie became the prevalent means of payment for
In 1871-73, newly unified Germany adopted the gold standard, replacing the silver-based currencies that had been prevalent in most German states until then. The reform sparked a series of steps in other countries that ultimately ended global bimetallism, i.e., a near-universal fixed exchange rate system in which (mostly) France stabilized the exchange value between gold and silver currencies. As a result, silver currencies depreciated sharply, and severe deflation ensued in the gold block. Why did Germany switch to gold and set the train of destructive events in motion? Both a review of the contemporaneous debate and statistical evidence suggest that it acted preemptively: the Australian and Californian gold discoveries of around 1850 had greatly increased the global supply of gold. By the mid-1860s, gold threatened to crowd out silver money in France, which would have severed the link between gold and silver currencies. Without reform, Germany would thus have risked exclusion from the fixed exchange rate system that tied together the major industrial economies. Reform required French accommodation, however. Victory in the Franco-Prussian war of 1870/71 allowed Germany to force accommodation, but only until France settled the war indemnity and regained sovereignty in late 1873. In this situation, switching to gold was superior to adopting bimetallism, as it prevented France from derailing Germany’s reform ex-post.
the financial account is functional category (i.e., direct investment, portfolio investment, other investment , and reserve assets) while the SNA classification is primarily by type of instrument: monetary gold, currency and deposits, loans, etc. (See Chapter 3 for details of the relationship between the two sets of accounts.) The structure of the capital and financial account also is generally compatible with other statistical systems of the IMF and is consistent with the classification of related income components of the current account and with the
In the early 1870s, the global monetary system transitioned from bimetallism—a regime in which gold and silver currencies were tied at quasi-fixed exhange ratios—to the gold standard that was characterized by the use of (only) gold as the main currency metal by the largest and most advanced economies. The transition ocurred against the backdrop of both large supply shifts in global bullion markets in the 1850s and 60s and momentous political events, such as the Franco-Prussian war of 1870/71 and the subsequent foundation of the German empire. The causes for the transition have long been a matter of intense debate. This article discusses three separate but interrelated issues: (i) assessing the robustness of the pre-1870 bimetallic system to shocks—which includes a discussion of the appropriate use of Flandreau’s (1996) reference model; (ii) analyzing the transition from bimetallism to gold as a multi-stage currency game played by France and Germany; and (iii) evaluating the monetary debates at the German Handelstag conferences in the 1860s, to present a more complete narrative of the German discussion in the run-up to the transition.
– “the gold, currency, and other claims on (and obligations of) other parties owned by an economic agent; or the claims on (or obligations of) an economic agent owned by other parties.”
With the exception of gold and, by convention, IMF special drawing rights (SDRs), a fundamental characteristic of financial instruments is the existence of a contractual creditor/debtor relationship, i.e., one agent’s liability is another agent’s asset. Analysis of the economic impact of financial transactions is facilitated by reference to the characteristics of the different