In Sixteenth-and seventeenth-century, the precious metals - silver was assigned as standard currencies by British government. The value of the coins was reflected by the bullion value that was the radio of the metal content to denomination. However, the England silver coinage were threatened by some unethical individuals and governments’ actions that physically alternated, debased, devalued, or revalued it. (Black, Module 4, Topic 4.4).
The manual minted sliver coins at the time were often irregular in size and shape. Besides, after periods of usage, the old sliver coins were naturally worn and torn which normally had thinner edges. The bullion content of these coins became less weight than legal coins. Some unscrupulous speculators took a chance that deliberately minted with short-weight bullion content, or physically clipping or filling little segments of precious metals from the proper coins. The silver chips would be collected and illegally melted by individuals, then smuggled to the foreign countries. “When the debased money was circulating along the legal coins, the latter will tend to be exported, leaving only the inferior money in the circulation.” Gresham described these unethical practices as “bad money drives out good”. (Black, Module 4, Topic 4.4)
Because the clipped coins were not liable to the public, it was habitually accepted only for less than their stamped value. On the other hand, people tended to use these suspicious coins to pay taxes. Oppositely, the British government was eager to raise funds for the war against France. With these double results, the British government was advised by William Lowndes to cry up the value of the money in order to discharge large debts with a small sum. The revaluation could be reversed when the war ended which would cry down to receive more revenue from the tax payers. (Black, Module 4, Topic 4.4)
Once the British government needed more revenue, the re-coinage had to take place. The government could make more profits by charging a minting fee and issuing the new coins in smaller size with reduced bullion content. Frequent re-coining made the public losing their confidence on the silver coins’ value. This re-minting of underweight coins also resulted in a shortage of silver coins in circulation. (Black, Module 4, Topic 4.4)
John Locke strongly objected the revaluation advises. He saw revaluation of the coinage as monetary devaluation which would cause price inflation. He debated that money’s value depends on faith, and the faith relied upon the bullion content value. In his work Further Considerations Concerning Raising the Value of Money (1696), he argued that “if the denominations of the money were raised by 20 percent, hoarders would be the only beneficiaries.” However, these hoarders tended to take silver out of circulation, compounding the shortage. (Black, Module 4, Topic 4.4) Locke advocated all people were equal and independent, and “no one ought to harm another's life, health, liberty, or possessions.” (http://www.sussex.ac.uk/Users/jgf21/Locke.html, retrieved on October 23, 2006)
Locke suggested gold or silver as money because they may be “hoarded up without injury to anyone,” since they did not spoil or decay in the hands of the possessor. He insisted silver was the correct money of account and should not be altered. (C.R. Fay, “Newton and the Gold Standard,” Cambridge Historical Journal 6, 1935:110)
In 1696, Isaac Newton was appointed Warden of the Royal mint. He supported Locke’s view on protecting the standard national coinage. He oversaw the great English re-coinage by using standard machine-stuck coins to replace the old hand-stuck clipped or worn silver coins. This helped to discourage clippings. Newton prudently supervised the mint process to make sure the coins have right size with genuine content. He also prosecuted counterfeiters with great ferocity. (http://members.aol.com/dkaplan888/newt.htm, retrieved on October 24, 2006)
From 1696 to 1699, the silver coins and the silver for coins were extremely deficiency in England due to frequent call-in, re-coinage, and overvalued gold’s price. Speculators therefore bought more gold to England and silver were largely lost due to exportation. In order to prevent the outflow of silver, Newton surveyed other European countries, India, and China of world gold-to-silver ratios then convinced that the guinea coin in England was valued too high in silver. As a result, Newton conservatively recommended to re-value the gold guinea’s value to a fixed rate 21 shillings, even thought 20.5 would have been better reflect the value of its gold content. (Black, Module 4, Topic 5.4) 100 years since then, the gold was linked to the money account and gold guinea standard was established.
1696, all of these factors pushed British government switching its monetary standard from silver to gold.