Pulling up the Tarnished Anchor: The End of Silver as a Global Unit of Account

Kris Mitchener, Marc Weidenmier and Ricardo Fernholz

No 11952, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use the demise of silver-based standards in the 19th century to explore price dynamics when a commodity-based money ceases to function as a global unit of account. We develop a general equilibrium model of the global economy with gold and silver money. Calibration of the model shows that silver ceased functioning as a global price anchor in the mid-1890s—the price of silver is positively correlated with agricultural commodities through the mid-1890s, but not thereafter. In contrast to Fisher (1911) and Friedman (1990), both of whom predict greater price stability under bimetallism, our model suggests that a global bimetallic system in which the gold price of silver fluctuates has higher price volatility than a global monometallic system. We confirm this result using agricultural commodity price data for 1870-1913.

Keywords: Bimetallism; Classical gold standard; Silver; Unit of account; Fixed exchange rates (search for similar items in EconPapers)
JEL-codes: E42 F33 N10 N20 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Journal Article: Pulling up the tarnished anchor: The end of silver as a global unit of account (2017)
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