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The silver standard[a] is a monetary system in which the standard economic unit of account is a fixed weight of silver. Silver was far more widespread than gold as the monetary standard worldwide, from the Sumerians c. 3000 BC until 1873. Following the discovery in the 16th century of large deposits of silver at the Cerro Rico in Potosí, Bolivia, an international silver standard came into existence in conjunction with the Spanish pieces of eight. These silver dollar coins played the role of an international trading currency for nearly four hundred years.
The use of commodity money can be traced to the cultures of the Bronze Age c. 3300 BC, with bronze, silver and gold being the most prominent. However, the first commodity to satisfy all the functions of money was silver under the Sumerians of Mesopotamia as early as 3100 BC. Shortly after they developed writing c. 3300 BC the Sumerians recorded the use of silver as the standard of value c. 3100 to 2500 BC along with barley. Sometime before 2500 BC the silver shekel became their standard currency, with tablets recording the price of timber, grains, salaries, slaves etc. in shekels.[1][2]
For millennia it was also silver, not gold, which was the real basis of the domestic economies: the foundation for most money-of-account systems, for payment of wages and salaries, and for most local retail trade. In 14th to 15th century England, for instance, most highly paid skilled artisans earned 6d a day (six pence, or 5.4g silver in the mid-15th century), and a whole sheep cost 12d. So even the smallest gold coin, the quarter-noble of 20d (with 1.7g fine gold), was of little use for domestic trade.[3]
Everyday economic activities were therefore conducted with silver as the standard of value and with silver serving as medium of exchange for local, domestic and even regional trade. Gold functioned as a medium for international trade and high-value transactions, but it generally fluctuated in price versus everyday silver money.[3] Gold as the sole standard of value would not occur after various developments occurring in England starting the 18th century.
The first metal used as a currency was silver, more than 4,000 years ago, when silver ingots were used in trade. During the heyday of the Athenian empire, the city's silver tetradrachm was the first coin to achieve "international standard" status in Mediterranean trade.
Great Britain's early use of the silver standard is still reflected in the name of its currency, the pound sterling, which traces its origins to the early Middle Ages, when King Offa of Mercia introduced a 'sterling' coin made by physically dividing a pound (mass) of silver in 240 parts.[4] In practice, the weights of the coins was not consistent and 240 of them seldom added up to a full pound; there were no shilling or pound coins and the pound was used only as an accounting convenience.[5]
In 1158, King Henry II introduced Tealby penny. English currency was almost exclusively silver until 1344, when the gold noble was put into circulation. However, silver remained the legal basis for sterling until 1816.
Beginning in 1515, silver coins were minted at the silver mines at Joachimsthal - Jáchymov (St. Joachim's Valley) in Bohemia, now part of the Czech Republic. Although formally called Guldengroschen, they became known as Joachimsthaler, then shortened to thaler.[6] The coins were widely circulated and became the model for silver thalers issued by other European countries. The word thaler became dollar in the English language.
Rich deposits of silver in southern Mexico and Guatemala, allowed the Spaniards to mint great quantities of silver coins. The Spanish dollar was a Spanish coin, the real de a ocho and later peso, worth eight reals (hence the nickname "pieces of eight"), which was widely circulated during the 18th century.
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 1846, 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.
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.
By acts of Congress in 1933, including the Gold Reserve Act and the Silver Purchase Act of 1934, the domestic economy was taken off the gold standard and placed on the silver standard for the first time. The Treasury Department was re-empowered 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.[8]
This meant that for every ounce of silver in the U.S. Treasury's vaults, the U.S. government could continue to issue money against it. However, stamp overprints which were used under the Silver Purchase Act of 1934 to finance the nationalisation of U.S. silver mines, and also carried taxes ranging from 1 to $1,000, ended in 1943.[9] These silver certificates 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, silver began to flow out of the Treasury at an increasing rate. To slow the drain, President Kennedy ordered a halt to issuing $5 and $10 silver certificates in 1962. That left the $1 silver certificate as the only denomination being issued.
On June 4, 1963, Kennedy signed Public Law 88-36, which marked the beginning of the end for even the $1 silver certificate. The law authorized the Federal Reserve to issue $1 and $2 bills, and revoked the Silver Purchase Act of 1934, which authorised the Secretary of the Treasury to issue silver certificates (by now limited to the $1 denomination). Because it would be several months before the new $1 Federal Reserve Notes could enter circulation in quantity, there was a need to issue silver certificates in the interim. Because the Agricultural Adjustment Act of 1933 granted the right to issue silver certificates to the president, Kennedy issued Executive Order 11110 to delegate that authority to the Treasury Secretary during the transition.
Silver certificates continued to be issued until late 1963, when the $1 Federal Reserve Note was released into circulation. For several years, existing silver certificates could be redeemed for silver, but this practice was halted on June 24, 1968.
Finally, on August 15, 1971, President Richard Nixon announced[10] 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. This announcement was part of the economic measures now known as the "Nixon Shock".
Due to the monetary policy of the U.S. Federal Reserve, calls for a return to the gold standard have returned.[citation needed] 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.[citation needed] This was done because the Federal Reserve Act does not allow them to print their own currency if they wished.[citation needed] As of January 2012, Utah allowed the payment of debt to be settled in silver and gold, and the value of the American silver or gold rounds used was pegged to the price of the given precious metal.[citation needed] Payment in some cases can be requested to be made in silver or gold rounds. As of 2011, eleven other U.S. states were exploring their options to possibly make similar changes like Utah.[11]
The silver standard was again adopted and codified in 1914 by the newly established republic, with one yuan still being equal to 0.72 tael of 900 fineness silver. After the Chinese Nationalist Party (Kuomintang) unified the country in 1928, the yuan was again announced as the standard unit in 1933, but this time the relationship of the yuan to the tael was abolished, as one yuan was now equal to 26.6971 grams of 880 fineness silver. In the same year, 1933, while most of the Western countries (especially Britain and USA) had left the gold standard because of the Great Depression, it was said that China almost avoided the depression entirely, mainly due to having stuck to the silver standard.[12] However, the US silver purchase act of 1934 created an intolerable demand on China's silver coins, and so in the end the silver standard was officially abandoned in September 1935 in favour of the four Chinese national banks' "legal note" issues. China would be the last to abandon the silver standard, along with the British crown colony of Hong Kong.
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