Re:Why Henry III's gold penny failed
by WalterBright on Monday January 31, 2022 @06:13PM
(#30156164)
> it's worked well enough at various times
And when it doesn't, it's a doozy, as in the Great Depression. (The fed inflated the currency while the exchange rate was pegged to gold.)
> and has the muscle to compel citizens to do it
Even in the most totalitarian countries, it leads to collapse.
Bit of a joke but not really. Bimetallism is an attempt to harmonize two mediums of exchange, and it's worked well enough at various times.
Combines well with a bit of seignorage: not so much that the coins don't have value, but enough that they trade above the melt value of the metal.
If the sovereign says "pay taxes with a 90% silver coin with my face or the same weight of pure silver, don't care", and has the muscle to compel citizens to do it, this puts some slack in the actual exchange rate between gold and silver: one or the other has to exceed the debased rate, rather than the natural rate, for melting to be the rational move.