Silver standard (銀本位制)

The silver standard is a system in which silver forms the basis of a monetary system of a country. The base currency, or the standard currency, is silver coins, allowed free coinage and free fusing and given power to circulate unlimitedly.

In this case, the currency of the country is represented as a certain amount of silver, and silver value is set as default for commodity price.

In fact, there are not many examples of a genuine silver standard for which silver is the only legal standard currency in history. In the Edo period, there was Sanka seido (Tokugawa coinage) in which Koban (oval gold coins), Chogin (silver coins), and Senka (small coins) were unlimitedly passable as standard coins in effect. In fact, however, gold coins circulated in eastern Japan, while silver coins circulated in western Japan. In this way, the system in which both silver and gold coins were set as standard currency is called bimetallism.

According to some reasons such as securing gold and silver metal, however, the bimetallism became a mere formality that only silver coins circulated. Therefore, the system often goes to silver standard in effect. As an example, in the nineteenth century, many of European countries adopted the bimetallism, but there was wide gap of legal exchange ratio between gold and silver because silver production increased and its market value declined. In such cases, the system gradually eroded and changed to the silver standard, because it was advantageous to circulate silver coins and hoard gold coins (Gresham's law).

Since fluctuation of market value of silver during this period was significant and tended to decline remarkably and the United Kingdom, which led the world economy around that time, already shifted to the gold standard, countries which adopted silver standard were seriously affected, so most of the countries shifted to the gold standard in the end of the nineteenth century.

In Japan, New Currency Regulation was established in June, 1871, and the gold standard was adopted formally. In the East market during that time, however, foreign payment was generally done by silver coins; therefore, 1 yen silver coin (weighed value: 416 grain) and silver coins of weighed value of 420 grain equivalent to German silver were issued for trade, and used as means of foreign payment for trade.

In 1878, 1 yen silver coins were approved for circulation in Japan, so that the system became bimetallism virtually. However, gold coins were scarcely circulated, because they outflowed and the government issued huge sum of irredeemable currency. In 1885 after the Matsukata deflation, conversion of silver by first Bank of Japan notes (100 yen, 10 yean and 1 yen of silver conversion notes with a picture of Daikoku [the god of wealth]) was started. The silver standard continued in effect until gold standard was formally adopted in 1897.

In China, the silver standard continued after the Xinhai Revolution. However, confusion of financial market because of the Great Depression led outflow of silver coins, so the silver standard was abandoned (the abandonment of the old "tael" and its replacement with the "yuan"; adoption of legal currency based on controlled currency system) in 1935. Consequently, there were few countries which adopted the silver standard.