Figure of the month: 1844
News Arnulf Hinkel, financial journalist – 01.03.2019
The gold specie standard was officially introduced by the Bank of England when the Bank Charter Act came into effect in 1844. Gradually, other countries followed, such as Portugal in 1854 and the Latin Monetary Union – consisting of France, Belgium, Italy, Greece and Switzerland – in 1865. Five years later, in 1870, the gold standard was established as the dominant monetary system. Prior to that, the bimetallic standard had been predominant, with gold or silver as the basis of national currency systems.
The longing for a hard currency
The bimetallic standard and later the gold specie standard had their origins in the desire for a reliable, value-preserving means of payment, retaining its value even in times of crisis such as famines, wars, hyperinflation or rampant epidemics. The initial solution was to issue so-called full-bodied coins, i.e. coins whose face and intrinsic value were equal due to the value of the precious metal they were made of. In times of bimetallism, there often was a fixed mint ratio for gold against silver. Later, the so-called gold core currency prevailed, with the respective monetary authority guaranteeing the value of banknotes by backing them with gold.
The gold standard: from the Empire across the globe
The triumph of the gold standard was initially nothing more than the decline of the silver standard and thus the end of the bimetallic standard. The fixed price of silver coins against gold was too low, so that an increasing number of silver coins were not used as means of payment but melted and sold, since the pure material price was above the nominal value. When Britain switched its monetary system to the gold specie standard, major countries with trade relations with the economically predominant British Empire worldwide also abandoned the silver standard and switched to a gold-based monetary system. The international gold standard existed in this form until the outbreak of WWI and then resumed almost unchanged until the global economic crisis.