Silver Standard - United States

United States

The United States adopted a silver standard based on the "Spanish milled dollar" in 1785. This was codified in the 1792 Mint and Coinage Act, and by the Federal Government's use of the "Bank of the United States" to hold its reserves, as well as establishing a fixed ratio of gold to the US dollar. This was, in effect, a derivative silver standard, since the bank was not required to keep silver to back all of its currency. This began a long series of attempts for America to create a bimetallic standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real. Because of the huge debt taken on by the US Federal Government to finance the Revolutionary War, silver coins struck by the government left circulation, and in 1806 President Jefferson suspended the minting of silver coins.

The US Treasury was put on a strict hard money standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1848, which legally separated the accounts of the Federal Government from the banking system. However the fixed rate of gold to silver overvalued silver in relation to the demand for gold to trade or borrow from England. Following Gresham's law, silver poured into the US, which traded with other silver nations, and gold moved out. In 1853 the US reduced the silver weight of coins, to keep them in circulation, and in 1857 removed legal tender status from foreign coinage.

In 1857, the final crisis of the free banking era of international finance began, as American banks suspended payment in silver, rippling through the very young international financial system of central banks. In 1861 the US government suspended payment in gold and silver, effectively ending the attempts to form a silver standard basis for the dollar. Through the 1860-1871 period, various attempts to resurrect bi-metallic standards were made, including one based on the gold and silver franc; however, with the rapid influx of silver from new deposits, the expectation of scarcity of silver ended.

The combination that produced economic stability was restriction of supply of new notes, a government monopoly on the issuance of notes directly and indirectly, a central bank, and a single unit of value. As notes devalued, or silver ceased to circulate as a store of value, or there was a depression, governments demanding specie as payment drained the circulating medium out of the economy. At the same time there was a dramatically expanded need for credit, and large banks were being chartered in various states, including those in Japan by 1872. The need for stability in monetary affairs would produce a rapid acceptance of the gold standard in the period that followed.

The Coinage Act of 1873, enacted by the United States Congress in 1873, embraced the gold standard and de-monetized silver. Western mining interests and others who wanted silver in circulation labeled this measure the "Crime of '73". For about five years, gold was the only metallic standard in the United States until passage of the Bland-Allison Act on February 28, 1878 requiring the US Treasury to purchase domestic silver bullion to be minted into legal tender coins co-existent with gold coins. Silver Certificate Series 1878 was issued to join the gold certificates already in circulation.

By acts of Congress in 1933, the domestic economy was taken off the gold standard and placed on the silver standard for the first time. The Treasury Department was reempowered to issue paper currency redeemable in silver dollars and bullion, thereby divorcing the domestic economy from bimetallism and leaving it on the silver standard, although international settlements were still in gold.

This meant that for every ounce of silver in the U.S. Treasury's vaults, the U.S. government (not the Federal Reserve) could continue to issue money against it. These silver certificates bore the name of the U. S. Treasury, not the Federal Reserve; they were shredded upon redemption since the redeemed silver was no longer in the Treasury. With the world market price of silver having been in excess of $1.29 per troy ounce since 1960, Congress repealed the legal foundation for Silver Certificates on June 4, 1963; but President John F. Kennedy responded with Executive Order 11110 that the Treasury should continue to "issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury". This Series 1958 introduced an additional $4.29 billion worth of United States Notes into circulation, consisting of $2.00 and $5.00 bills; and although they were never issued, $10.00 and $20.00 notes were in the process of being printed when Kennedy was assassinated in 1963. But the Treasury was being emptied of silver rapidly; in March 1964 issuance of the Series 1958 Silver Certificate was stopped and redemption in silver dollars was suspended; June 24, 1968 was the last day for redemption in silver bullion.

Finally, President Richard Nixon announced that the United States would no longer redeem currency for gold or any other precious metal, forming the final step in abandoning the gold and silver standards.

Due to the fiscal policy of the U.S Federal Reserve, calls for a return to the gold standard have returned. Some states have chosen to use a loophole in the Federal Reserve act that gives individual states the right to issue currencies of gold or silver coins or rounds. This was done because the Federal Reserve act does not allow them to print their own currency if they wished. Currently Utah allows the payment of debt to be settled in silver and gold, and the value of the American silver or gold rounds used is pegged to the price of the given precious metal. Payment in some cases can be requested to be made in silver or gold rounds. 11 other U.S states are currently exploring their options to possibly make similar changes like Utah.