Colonialism and the gold exchange standard
After certain leading countries adopted the gold standard, they were led to manage and organize a transition towards the gold standard of the countries under their influence, which were on a silver standard.
For example, Great Britain for India, and the United States for the Philippines, sought a system that would allow to stabilize the exchange rate between the countries that were on the gold standard and those that were not. The gold exchange standard (hereafter GES) was the solution. The idea was first introduced in 1876 by Lindsay in a letter to the Calcutta Englishman and developed thereafter in two pamphlets, Ricardo’s Exchange Remedy (1892) and How to Fix Sterling Exchange (1898). England did not follow Lindsay’s proposal but the United States did. Lindsay influenced the Conant-Jenks-Kemmerer mission (1903-04) to the Philippines, which resulted in the establishment of the first explicit GES in history. Kemmerer’s articles (1904, 1905) set out its principle: it is a system in which, without itself buying and selling gold, and thus without holding gold, a country stands ready to buy and sell a foreign currency which is freely and fully convertible into gold. So the GES enables the international economy to economize on gold with respect to the gold specie standard; it is a mechanism for providing a country with the gold standard without a gold currency. In the case of the Philippines, the government controlled the minting of a token money (the silver peso, defined by a gold weight worth US 50 cents) which constituted the legal tender, and a fund was created to hold remunerated bank deposits in US dollars. This fund - the Gold Standard Fund - was financed by a loan in dollars granted by certain New York banks and guaranteed by the American Treasury. The Gold Standard Fund intervened on the exchange market as soon as the dollar exchange rates of the peso departed from the official rate of an amount equal to the costs of transfer of gold between Manila and New York. When the exchange rate of the silver peso fell to the gold export point, the fund bought pesos and sold dollars; conversely, it bought dollars and sold silver pesos when the exchange rate of the silver peso reached the gold import point, therefore stabilizing the dollar exchange rate of the peso between the gold import and export points. There was no need for the circulation of gold coins in the Philippines, thanks to the Gold Standard Fund and to the definition of the legal tender.The gold exchange standard allowed a country to fix the value of its legal tender in terms of gold, even if there was no circulation of gold currency and even if the legal tender was not convertible into gold but into assets in dollars. The process of buying and selling Philippines pesos by the Gold Standard Fund was explained in accordance with Ricardian theory. Buying (selling) silver pesos by the fund results in a reduction (increase) in the quantity of money circulating inside the Philippines. On the other hand, this innovation in the management of the gold standard by American economists tells us that they had perfect mastery of the gold points mechanism.