dollars of the United States, though no longer coined, are legal tender at their face value in payment of all debts, public and private, and circulate at par with gold. Countries which are theoretically on the single gold standard, but which retain silver coins with full legal tender power, are said to have a "limping standard," because the silver coins, though of less value intrinsically than the gold coins, limp along on an equality with gold by being coupled with it. They remain at a parity with gold because of their limited quantity, their full legal tender power, and their acceptance in payment of public dues. Because of its high value, gold is not adapted to coinage into the small pieces needed for hand-to-hand money. For the smaller coins, ranging from ten cents to a dollar, silver is most suitable. Nickel and copper are used for coins of still smaller denominations. Various methods have been adopted in different countries to regulate the quantity of subsidiary silver. In Germany it is now limited to 15 marks per capita and in France to 7 francs. In the United States and in Great Britain no limit is set. Generally when no limit is fixed the government buys bullion and coins silver coins in such amounts as experience shows to be needed from time to time. 17. The gold exchange standard.-A few countries, including Mexico, China, the Philippines and India, which are upon a silver basis, have been able to adjust their international relations with gold standard countries by adopting the "gold exchange standard," so called because the currency issued under it is exchangeable at a fixed ratio with gold. "The gold exchange standard," says Conant, "differs from the single metallic standard in the fact that it contemplates the coinage and circulation of little or none of the standard metal, but provides means (chiefly by government control of the coinage) for keeping token coins of cheaper metal at a fixed value in standard money. This system is in practice similar to that of the limping standard, but the latter term is applied more properly to 1 Conant: Principles of Money and Banking, Vol. I, p. 279. the coinage system of countries which have unconsciously drifted into the large use of overvalued token money; while the term gold exchange standard is applied to the system of countries which "have adopted gold as the standard but have deliberately issued token silver coins for current use, adjusted to local requirements and to the reduced value of silver bullion." India adopted the gold exchange standard in 1899, the Philippines in 1904, and Mexico in 1905. To sustain the silver coins at their face value for purposes of money, laws have been passed limiting the quantity issued to the commercial needs of the country, and making them receivable at face value by the government for public dues. In the plans adopted for a gold exchange standard the coinage ratio between gold and silver was adjusted to the decline in the gold value of silver in recent years. Thus, the ratio adopted in the Philippines was about 32 to 1. To meet the demands of foreign exchange growing out of international trade, the governments of countries having the gold exchange standard keep gold funds in the leading financial centers and sell foreign exchange calling for gold in these centers at fixed rates in exchange for the silver money of the country. The adoption of the gold exchange standard by countries formerly upon a silver basis has steadied the par of exchange between Oriental and Western countries and has left countries where silver was best adapted to local conditions free to use it without being subject to the inconvenience of fluctuations in its gold value.1 READING REFERENCES Conant: Principles of Money and Banking, Vol. I, Bk. I, Johnson: Money and Currency, Chs. II, XI. 1 For a full discussion of the gold exchange standard see Conant, Principles of Money and Banking, Vol. I, Bk. III, Chs. VI, VII; also Economic Journal, June. 1909, pp. 190-200, and Quarterly Journal of Economics, Vol. XIX, pp. 600-605. Laughlin: History of Bimetallism. Scott: Money and Banking (5th ed.), Chs. I, II. Taussig: Principles of Economics, Chs. 20, 21. White: Money and Banking, Bk. I, Chs. II, VI. CHAPTER III HISTORY OF UNITED STATES COINAGE 18. Adoption of a coinage system. The coinage system of the United States was established by Act of Congress in 1792, which followed closely the recommendations of Alexander Hamilton, first Secretary of the Treasury, in his report on the establishment of a mint. The principal features of this first coinage act were the adoption of the bimetallic system, of the decimal system of reckoning, and of the dollar as the unit of value. The dollar 1 was adopted as the unit of value because in all the States people had become used to quoting prices in that unit and were already familiar with the Spanish milled dollar. The simplicity and convenience of the decimal system as compared with the awkward English system of reckoning in pounds, shillings and pence, led naturally to the adoption of the former. Bimetallism was adopted because that system was in use in European countries and it was believed that bimetallism would insure a larger supply of coin than would either silver or gold monometallism. 19. The silver period. Under the coinage system thus adopted both gold and silver were made full legal tender and the mint was to be open to the free and unlimited coinage of both. At the market prices then existing a dollar would buy 371 grains of pure silver or 243 grains of pure 1 The word dollar is a corruption of the German Thaler, abbreviated from Joachimthaler, a silver coin issued in Bohemia in the sixteenth century. gold, that is, gold was worth fifteen times as much as silver weight for weight. This ratio of 15 to 1 was therefore preserved in the coins. Before the mint had begun to manufacture the new coins, a change occurred in the relative value of gold and silver in the commercial market. Gold became worth more than fifteen times as much as silver, an ounce of gold exchanging as bullion for 15 ounces of silver. Under these circumstances very little gold was brought to the mint to be coined. Since an ounce of gold would buy 151⁄2 ounces of silver and the mint would give to 15 ounces of silver the same monetary power as to an ounce of gold, it was more profitable to sell gold as bullion and take only silver bullion to the mint to be coined. The little gold that was coined soon disappeared from circulation,, being melted down or exported, and the country was reduced to the cheaper silver standard. Our early experience with the new silver coins was also disappointing. Realizing that it would be some time before a sufficient supply of new coins could be made to meet the needs of the country, Congress had authorized the use of the Spanish dollar and several other kinds of foreign coins which were in circulation throughout the country. The Spanish dollar in perfect condition contained a little more silver than the new American silver dollar, and under the operation of Gresham's Law the American dollar should have driven out the Spanish coin, since both were full legal tender. But other influences interfered with the normal operation of the law in this case. There was at this time a considerable trade between the United States and the West Indies, and in both countries both dollars were accepted at their face value. American merchants engaged in this trade found it profitable to ship American dollars to the West Indies, exchanging them there for the heavier Spanish dollars, and sending the latter to the mint to be recoined into a larger number of American dollars. This 2 In the new coinage system established by France in 1803 the mint ratio of 15 to 1 was adopted. |