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Mr. Johannes Wiegand

Handelstag The 1865 Handelstag The 1868 Handelstag V. Main Conclusions References FIGURES 1. Estimating Specie Demand 2. Gold Share and Bimetallism’s Structural Limits 3. Actual and Predicted Specie Holdings in France, 1850–70 4. Specie Demand: Meissner’s Approach 5. Assessing Bimetallism’s Robustness with Meissner’s Approach 6. Bimetallism’s Robustness to Currency Reforms 7. Share of Silver Coins in France’s Specie Circulation, 1849–73 8. Currency Regime Preferences at the 1868 Handelstag

Mr. Johannes Wiegand

system is based on quasi-demand functions for gold and silver specie in the bimetallic block (for a derivation see Flandreau’s article): ( 1 a ) p G M G b = p G G ( 1 − m G ) − S m G ( 1 b ) M S b = p G G m S − S ( 1 − m S ) M G b a n d M S b are the monetary gold and silver respectively circulating in the bimetallic block, G is the global gold stock, S the global silver stock, p G is the legal mint ratio in the bimetallic block, and m G and m S are specie demand parameters. Bimetallism is viable as long as both gold and silver coins

Mr. Johannes Wiegand
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.
Mr. Johannes Wiegand

therefore focusses on the choice between bimetallism and gold. It will argue that adopting the gold standard weakly dominated bimetallism, as p(g,B) ≈ p(b,B) and p(g,G) > g(b,G) . Further, there are good reasons to believe that p(b,B) > p(g,G) , in which case the game resembles a prisoners’ dilemma (see section IV ). Figure 5 analyzes the game’s possible outcomes with Flandreau’s (1996) model. German and/or French monetary reforms (for simplicity both placed in 1873) trigger systematic changes in specie demand, and therefore alter bimetallism’s structural

Mr. Johannes Wiegand
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.