Coinage Act of 1873 - Impact On Exchange Rates

Impact On Exchange Rates

Canada had already been on the gold standard since 1853, as had Newfoundland since 1865. The new coinage act of 1873 now put the USA onto the gold standard 'de facto', and, as mentioned, it had the effect of depressing the value of silver in relation to gold. As such, silver dollars (worldwide) fell in value against the US dollar, the Canadian dollar and the Newfoundland dollar. This did not affect the Spanish dollar accounts that were being used in the British territories in the Eastern Caribbean because these were merely paper units that were being used in conjunction with sterling coinage at a fixed rate of $1 = 4s 2d. It did however have the effect of making silver dollar coins return to the West Indies. Silver dollars had very much disappeared in the West Indies following the discovery of gold in Australia in 1851. The return of silver dollars to the West Indies after 1873 threatened the gold standard there that had been in operation since 1704, and so by the year 1876, the British West Indies territories began to pass legislation to demonetize the silver dollars. In the Far East and in Latin America, the silver dollars dropped in value against the US unit, and by the year 1900 they had dropped to exactly one half of their pre-1873 gold value. The Mexican Peso, the Philippine Peso, and the Japanese Yen were now worth only 50 US cents. In the Philippines, this 2:1 exchange rate continued right up until November 1965 on the eve of the reign of President Ferdinand Marcos.