Definition
The Silver Standard is a monetary system in which a country’s currency is directly linked to a specific quantity of silver. In such systems, the government guarantees the currency’s exchangeability for silver at a fixed rate. Historically, several countries used silver as the basis for their monetary systems. For instance, the United States once issued silver certificates that were backed by silver reserves.
Examples
- U.S. Silver Certificates: Issued by the United States government between 1878 and 1964, these certificates were paper currency that could be exchanged for a certain amount of silver.
- British India: During the British colonial period, India operated on a silver standard until the early 20th century.
- Mexico: Used a silver-based monetary system for a significant part of its history during the 19th and early 20th centuries.
Frequently Asked Questions
What is the difference between the silver standard and the gold standard?
The silver standard links a country’s currency value to silver, whereas the gold standard ties the currency’s value to gold. Both systems guarantee the exchangeability of currency for a fixed amount of the respective metal.
Why did the silver standard fall out of favor?
The silver standard was phased out because it posed issues like the fluctuating value of silver and the challenges of limited silver resources compared to gold. This led to a trend towards fiat currency systems or gold standards.
How did the silver standard affect inflation?
The silver standard could help stabilize prices since the currency’s value was based on physical silver. However, fluctuating silver supply could lead to inflation or deflation.
Could a return to the silver standard happen in the modern economy?
While theoretically possible, a return to the silver standard would be impractical in the modern global economy due to the limited supply of silver and the complexities of modern financial systems.
What is fiat money?
Fiat money is currency that a government has declared to be legal tender but it is not backed by a physical commodity like gold or silver. Instead, its value comes from the trust and confidence of the population in the government’s ability to maintain its value.
Related Terms
- Gold Standard: A monetary system where currency value is based on a certain amount of gold.
- Fiat Money: Currency that does not have intrinsic value and is not backed by a physical commodity.
- Bimetallism: A monetary system in which the value of the national currency is linked to both gold and silver.
Online References
- Investopedia’s Silver Standard
- Wikipedia’s Silver Standard
- Federal Reserve History - Silver Certificates
Suggested Books for Further Studies
- “The Power of Gold: The History of an Obsession” by Peter L. Bernstein
- “Money, Credit, and Commerce” by Alfred Marshall
- “The Gold Standard in Theory and History” edited by Barry Eichengreen and Marc Flandreau
Fundamentals of Silver Standard: Economics Basics Quiz
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