Silver Standard - The Relative Value of Silver and Gold

The Relative Value of Silver and Gold

Since the time that silver was discovered by the Spanish in the new world in the 16th, until the latter half of the 19th century, the value of gold in relation to silver, maintained a relatively stable ratio of 15½/1. The reason for the subsequent sharp decline in the relative value of silver to gold has been attributed to Germany's decision to cease minting the silver Thaler coins in 1871. On 23 November 1871, following the defeat of France in the Franco-Prussian war, Bismarck exacted one billion dollars in gold indemnity, and then proceeded to move Germany towards a new gold standard which came about on 9 July 1873 with the introduction of the gold mark.

It has also however been suggested by Nevada Senator John Percival Jones in 1876 in a speech to the US Senate, that the downward pressure on the market value of silver began somewhat earlier with the formation of the Latin Monetary Union in 1866. Jones argues that the Latin Monetary Union involved a partial demonetization of silver.

Silver made a partial comeback in the first decade of the 20th century, such that the silver dollar coins of the Straits Settlements and silver Peso coins of the Philippines had to be made smaller in size, and with a reduced silver content in order to prevent their silver value exceeding their recently established gold exchange value. An even larger rise in the price of silver after the First World War caused the Royal Mint in London to reduce the silver content of the sterling coinage. But silver never returned to the 15½/1 ratio of the first half of the 19th century, and the predominant long term trend was that silver continued to decline in value against gold. Nowadays the ratio in relation to the value of gold, although variable, is more of the order of 50/1.