What about silver?

June 9th, 2007

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In our previous article, A brief history of money and its breakdown- Part 1, we mentioned that

But over the course of centuries, gold and silver, for whatever reason, were eventually selected by most civilisations as money?gold for larger exchanges and silver for smaller exchanges.

In Murray Rothbard?s excellent book: What Has Government Done to Our Money?, it mentioned that

It is very possible that the market, given free rein, might eventually establish one single metal as money. But in recent centuries, silver stubbornly remained to challenge gold. It is not necessary, however, for the government to step in and save the market from its own folly in maintaining two moneys. Silver remained in circulation precisely because it was convenient (for small change, for example). Silver and gold [41] could easily circulate side by side, and have done so in the past. The relative supplies of and demands for the two metals will determine the exchange rate between the two, and this rate, like any other price, will continually fluctuate in response to these changing forces. At one time, for example, silver and gold ounces might exchange at 16:1, another time at 15:1, etc. Which metal will serve as a unit of account depends on the concrete circumstances of the market. If gold is the money of account, then most transactions will be reckoned in gold ounces, and silver ounces will exchange at a freely-fluctuating price in terms of the gold.

As we said before in Is gold a commodity?, gold is not a commodity the way industrial metals like copper, zinc and iron are. What about silver?

Silver, the monetary cousin of gold, is more troublesome. Unlike gold, there are much more industrial use for silver. In addition, annual world demand for silver exceeds its annual production every year since 1990 and is projected to continue. Thus, there is a belief among many that the global silver stockpile is set to decline further, which means that its price is most likely to continue rising.