DP9300 Competing Bimetallic Ratios: Amsterdam, London and Bullion Arbitrage in the Mid-18th Century

Author(s): Pilar Nogues-Marco
Publication Date: January 2013
Keyword(s): arbitrage, bimetallic stability, bullion market integration, melting-minting points, monetary policy, specie-point mechanism
JEL(s): E42, F15, N13, N23
Programme Areas: Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9300

This article analyzes the stability of bimetallism for countries operating in integrated bullion markets who enact different legal ratios. I articulate a new theoretical framework to demonstrate that two countries can both be bimetallic only if they coordinate their legal ratios. The theoretical framework is applied to the mid-18th century when London?s legal ratio was 3.8% higher than that of Amsterdam. I find that Amsterdam was effectively on the bimetallic standard, whereas London was on a de facto gold standard.