Impact of New Silver Mines on Currency Circulation: Why Only Gold Currency Will Prevail

Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold and $2 for one ounce of silver. If new silver mines open and flood the market with silver,only the gold currency will circulate. no change will take place since citizens could exchange their gold currency for silver currency at any time. none of the options. only the silver currency will circulate.

only the silver currency will circulate.

If new silver mines open and flood the market with silver, the value of silver will decrease relative to gold due to an increase in the supply of silver. This means that the exchange rate of silver to gold will change from $2 for one ounce of silver to a higher value. As the value of silver decreases, it will become less valuable to hold silver currency and people will prefer to use gold currency which maintains its value. Hence, only the gold currency will circulate.

Therefore, the correct answer is: only the gold currency will circulate.

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