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Department ofEconomics


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

Kris Mitcherner, Ricardo Fernholz and Marc Weidenmier

Journal of International Money and Finance 74, 209-28, June 2017


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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


LSB Research, Econ, 2017, Kris Mitcherner