silver standard

The silver standard 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 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 were an international trading currency for nearly four hundred years.

The move away from the silver to the gold standard began in the 18th century when Great Britain set the gold guinea’s price in silver higher than international prices, on the recommendation of Sir Isaac Newton, thus attracting gold and putting Great Britain on a de facto gold standard. Great Britain formalised the gold standard in 1821 and introduced it to its colonies afterwards. Imperial Germany’s move to the gold standard in 1873 triggered the same move to the rest of Europe and the world for the next 35 years, leaving only China (and, until 1930, the French Indochinese piastre) on the silver standard. By 1935 China and the rest of the world abandoned the silver and gold standards, respectively, in favour of government fiat currencies pegged to the pound sterling or the U.S. dollar.

Origins

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 B,C 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.

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 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.pp 13-14 sec 5(f)(g)(h) https://www.economics.utoronto.ca/munro5/MONEYLEC.pdf

Every day, economic activities were therefore conducted with silver as the standard of value and with silver serving as a 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. Gold as the sole standard of value would not occur until after various developments occurring in England starting in the 18th century.

History

Ancient Greece

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

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. 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.

In 1158, King Henry II introduced the ''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.

In 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight at to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, £1/1/-). However, this valuation overvalued gold relative to silver compared to other European countries. British merchants sent silver abroad in payments, while exports were paid for with gold. As a consequence, silver flowed out of the country and gold flowed in, leading to a situation where Great Britain was effectively on a gold standard. In 1816, the gold standard was adopted officially, with the silver standard reduced to 66 shillings (66/-, £3/6/-), rendering silver coins a "token" issue (i.e., not containing their value in precious metal).

The economic power of Great Britain was such that its adoption of a gold standard put pressure on other countries to follow suit.

Bohemia

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''. 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.

Spanish Empire

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.

By the American Revolution in 1775, Spanish dollars backed paper money authorized by the individual colonies and the Continental Congress. In addition to the American dollar, the 8-real coin became the basis for the Chinese yuan.

Germany

After its victory in the Franco-Prussian War (1870–71), Germany extracted a huge indemnity from France of £200,000,000 in gold and used it to join Britain on a gold standard. Germany's abandonment of the silver standard put further pressure on other countries to move to the gold standard.

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. Due to 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 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 the restriction of the 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-monetised 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, 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.

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. 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 more than $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 authorized the Secretary of the Treasury to issue silver certificates (by now limited to the $1 denomination). As 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. As 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 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".

In response to the perceived shortcomings of U.S. monetary policy in the 21st century, some states have explored making silver and gold legal tender. In 2011, Utah legalized the settlement of debts using silver and gold. Other U.S. states have also explored their options to possibly make similar changes like Utah.

Imperial China

China had long used silver ingots as a medium of exchange, along with the cast copper-alloy cash. The use of silver ingots can be traced back as far as the Han dynasty (206 BC – 220 AD). But prior to the Song dynasty (960–1279), those silver ingots were used mainly for hoarding wealth. During the Song dynasty, for the first time in history, the government became the sole issuer of paper currency after 1024, but cast coins and silver ingots were still used as a medium of exchange. In the Shanyuan Treaty, signed with the state of Liao in 1004, Song China agreed to pay an annual indemnity or tribute of 100,000 tael