Silver standard
Encyclopedia
The silver standard is a monetary system
in which the standard economic
unit of account
is a fixed weight of silver
. The silver specie standard was widespread from the fall of the Byzantine Empire
until the 19th century. Following the discovery in the 16th century of large deposits of silver at the Cerro Rico in Potosi
, Bolivia
, an international silver specie 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.
In 1704, following Queen Anne's proclamation, the British West Indies
became one of the first regions to adopt a gold standard
in conjunction with the Spanish
gold doubloon
coin. In 1717, the master of the Royal Mint
, Sir Isaac Newton, introduced a new mint ratio as between silver and gold, and this had the effect of putting Britain
onto a de facto
gold standard. Following the Napoleonic wars
, the United Kingdom
introduced the gold sovereign coin and formally adopted a gold standard
in 1821. At the same time, revolutions in Latin America
interrupted the supply of silver dollars (pieces of eight
) that were being produced at the mints in Potosi
, Mexico
, and Lima
. The British gold standard
initially extended to some of the British colonies, notably the Australasian colonies and the Southern African colonies, but it did not extend to the North American colonies, to British India, or to South-East Asia. Canada
adopted a gold standard
in 1853 as did Newfoundland
in 1865. In 1873, Germany
changed over to the gold standard in conjunction with the new gold mark coin. The United States changed over to gold de facto
in the same year, and over the next 35 years, all other nations changed to gold, leaving only China
and the British colonies of Hong Kong
and Weihai
wei on the silver standard. The silver standard finally came to an end when it was abandoned by China
and Hong Kong
in 1935.
was discovered by the Spanish
in the new world
in the 16th, until the latter half of the 19th century, the value of gold in relation to silver, maintained a relatively stable ratio of 15½/1. The reason for the subsequent sharp decline in the relative value of silver to gold has been attributed to Germany's decision to cease minting the silver Thaler
coins in 1871. On 23 November 1871, following the defeat of France
in the Franco-Prussian war
, Bismarck
exacted one thousand million dollars in gold indemnity, and then proceeded to move Germany
towards a new gold standard
which came about on 9 July 1873 with the introduction of the gold mark.
It has also however been suggested by Nevada Senator John Percival Jones in 1876 in a speech to the US Senate, that the downward pressure on the market value of silver began somewhat earlier with the formation of the Latin Monetary Union
in 1866. Jones argues that the Latin Monetary Union
involved a partial demonetization of silver.
Silver made a partial come back in the first decade of the 20th century, such that the silver dollar coins of the Straits Settlements
and silver Peso
coins of the Philippines had to be made smaller in size, and with a reduced silver content in order to prevent their silver value exceeding their recently established gold exchange value. An even larger rise in the price of silver after the first world war
caused the Royal Mint
in London to reduce the silver content of the sterling
coinage. But silver never returned to the 15½/1 ratio of the first half of the 19th century, and the predominant long term trend was that silver continued to decline in value against gold. Nowadays the ratio in relation to the value of gold, although variable, is more of the order of 50/1.
used as a currency
was silver
more than 4,000 years ago, when silver ingot
s 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.
had long used silver ingot
s as a medium of exchange, along with the cast
copper-alloy cash
. The use of silver ingot
s can be traced back as far as the Han dynasty (206 BC-220 AD). But prior to the Song Dynasty
(960-1280), those silver ingots were used mainly for hoarding wealth. During the Song Dynasty
, though first time in history the government became the sole issuer of paper currency after 1024, 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
of silver and 200,000 bolts of silk
. This was the first time bulk silver in tael (Chinese: 銀兩) was used as indemnity in a treaty with a foreign power. Silver ingots had a shape similar to a boat or a Chinese shoe during the Yuan Dynasty
(1271–1368). This became an ordinary shape for silver ingots during the following centuries.
The use of silver as a medium of exchange was very established at the time of the Ming Dynasty
(1368–1644). Paper money
were issued as monetary standard at the beginning of the dynasty. But due to the rapid inflation, the issues were suspended around 1450, although notes remained in circulation until 1573 (see Chinese currency
). Meanwhile, silver was very much available through foreign trade with the Portuguese and the Spanish, beginning in the 16th century. The great taxation reform by Zhang Juzheng
(Chinese: 張居正) in 1581 (9th year of the Wanli Emperor
) simplified the taxation and required all the tax and corvee to be paid in silver. This can be seen as an indication of the firm position of silver in the monetary system of the Ming. But the reform would not have been a success or even feasible if the enormous amounts of silver were not available through the trade and imports from America, mainly through the Spanish.
During the Qing Dynasty
(1644–1911), silver ingots were still used, but various foreign silver dollars had become popular in the Southern coastal region through foreign trade since the mid-Qing era. It was apparent that the silver ingots became awkward and more complicated to use viz-a-viz the foreign silver dollars, which could be counted easily, given their fixed specification and fineness of silver. However, the Qing dynasty very much resisted the idea of minting a silver coin of their own. It was not until late Qing, in 1890, that the first circulating silver coin was introduced by Guangdong
province. The coin was at par with the Mexican Peso
, and soon this issue was emulated by other provinces. For these silver coins, the tael
was still seen as the proper monetary unit, as the denomination of the coins were given as 0.72 tael (specifically: 7 mace and 2 candareen
s). The equivalent monetary unit yuan (Chinese: 圓, literally "roundness") hadn't appeared yet. Note for the treaties signed between the Qing dynasty and other countries the indemnities were all in taels of silver, except for the Treaty of Nanking
, where the silver dollar was indicated. (See the Treaties of Tianjin, Convention of Peking
, Treaty of Shimonoseki
and Boxer Protocol
). It was not until 1910 (the 2nd year of the Xuantong Emperor (Chinese: 宣統)) that the yuan, was officially announced as the standard monetary unit. The yuan was subdivided into 10 jiao (Chinese: 角) or 100 fen, and specified as 0.72 tael
of 90 per cent fine silver. The next year, 1911, the so-called "Great Qing Silver Coin" one yuan (dollar) was issued.
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 90 per cent fine silver. After the Chinese Nationalist Party 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 gram
s of 88 per cent fine 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. (See Great Depression
). 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 1935 in favor of the four Chinese national banks' "legal note" issues. China and the British colony of Hong Kong
, which followed suit in this regard in September 1935, would be the last to abandon the silver standard. Hong Kong then adpoted the gold exchange standard and the Hong Kong dollar
took on the exact value of one shilling and three pence ("1s 3d") sterling
.
China's use of silver as a medium of exchange is reflected in the name for bank "銀行" (literally "silver house" or "silver office") and for the precious metal and jewel dealer "銀樓" (literally "silver building" or "silver shop").
was a silver coin originally minted by the Persians. The Caliphate
s in the Islam
ic world adopted these coins, starting with Caliph Abd al-Malik (685–705). Silver remained the most common monetary metal used in ordinary transactions until the 20th century.
(St. Joachim's Valley) in Bohemia
, now part of the Czech Republic
). Although formally called Guldengroschen
, they became known as Joachimsthalers, 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.
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
.
is derived from the Rūpaya, (silver is called rūpa in Sanskrit
) in a silver coin introduced by Sher Shah Suri
during his reign from 1540 to 1545. Since this is around about the same time that the Spanish
discovered silver
at the Cerro Rico in Potosi
, the silver value of the rupee
maintained a stable relationship with gold right up until the early 1870s. From 1871, the value of silver depreciated relative to gold, due to the drop in demand for silver in the mints of Europe and North America, as those countries changed over to the gold standard
. This had severe consequences for the rupee
and it resulted in the fall of the Rupee. Following the Fowler report
, India
adopted the gold exchange standard in the year 1898, fixing the value of the rupee at exactly one shilling and four pence (1s 4d) sterling
.
, which traces its origins to before the Middle Ages (see Anglo-Saxon pound), when King Offa of Mercia
introduced the silver penny
, which copied the denarius of Charlemagne
's Frankish Empire
.
The early silver pennies were struck from fine silver (as pure as was available). However, 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.
In 1663, a new gold coinage was introduced based on the 22 carat
fine guinea. Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds). 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/-, 3.3 pounds), 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.
(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.
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 bank
s. 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 charter
ed 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 murdered
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.
Monetary system
A monetary system is anything that is accepted as a standard of value and measure of wealth in a particular region.However, the current trend is to use international trade and investment to alter the policy and legislation of individual governments. The best recent example of this policy is the...
in which the standard economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
unit of account
Unit of account
A unit of account is a standard monetary unit of measurement of value/cost of goods, services, or assets. It is one of three well-known functions of money. It lends meaning to profits, losses, liability, or assets....
is a fixed weight of silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
. The silver specie standard was widespread from the fall of the Byzantine Empire
Byzantine Empire
The Byzantine Empire was the Eastern Roman Empire during the periods of Late Antiquity and the Middle Ages, centred on the capital of Constantinople. Known simply as the Roman Empire or Romania to its inhabitants and neighbours, the Empire was the direct continuation of the Ancient Roman State...
until the 19th century. Following the discovery in the 16th century of large deposits of silver at the Cerro Rico in Potosi
Potosí
Potosí is a city and the capital of the department of Potosí in Bolivia. It is one of the highest cities in the world by elevation at a nominal . and it was the location of the Spanish colonial mint, now the National Mint of Bolivia...
, Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
, an international silver specie standard came into existence in conjunction with the Spanish
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
pieces of eight
Pieces of Eight
Pieces of Eight is the eighth studio album and second concept album by Styx, released September 1, 1978.The album was the band's follow-up to their Triple Platinum selling The Grand Illusion album....
. These silver dollar coins played the role of an international trading currency for nearly four hundred years.
In 1704, following Queen Anne's proclamation, the British West Indies
British West Indies
The British West Indies was a term used to describe the islands in and around the Caribbean that were part of the British Empire The term was sometimes used to include British Honduras and British Guiana, even though these territories are not geographically part of the Caribbean...
became one of the first regions to adopt a gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
in conjunction with the Spanish
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
gold doubloon
Doubloon
The doubloon , was a two-escudo or 32-reales gold coin, weighing 6.77 grams . Doubloons were minted in Spain, Mexico, Peru, and Nueva Granada...
coin. In 1717, the master of the Royal Mint
Royal Mint
The Royal Mint is the body permitted to manufacture, or mint, coins in the United Kingdom. The Mint originated over 1,100 years ago, but since 2009 it operates as Royal Mint Ltd, a company which has an exclusive contract with HM Treasury to supply all coinage for the UK...
, Sir Isaac Newton, introduced a new mint ratio as between silver and gold, and this had the effect of putting Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
onto a de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...
gold standard. Following the Napoleonic wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...
, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
introduced the gold sovereign coin and formally adopted a gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
in 1821. At the same time, revolutions in Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
interrupted the supply of silver dollars (pieces of eight
Pieces of Eight
Pieces of Eight is the eighth studio album and second concept album by Styx, released September 1, 1978.The album was the band's follow-up to their Triple Platinum selling The Grand Illusion album....
) that were being produced at the mints in Potosi
Potosí
Potosí is a city and the capital of the department of Potosí in Bolivia. It is one of the highest cities in the world by elevation at a nominal . and it was the location of the Spanish colonial mint, now the National Mint of Bolivia...
, Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
, and Lima
Lima
Lima is the capital and the largest city of Peru. It is located in the valleys of the Chillón, Rímac and Lurín rivers, in the central part of the country, on a desert coast overlooking the Pacific Ocean. Together with the seaport of Callao, it forms a contiguous urban area known as the Lima...
. The British gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
initially extended to some of the British colonies, notably the Australasian colonies and the Southern African colonies, but it did not extend to the North American colonies, to British India, or to South-East Asia. Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
adopted a gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
in 1853 as did Newfoundland
Dominion of Newfoundland
The Dominion of Newfoundland was a British Dominion from 1907 to 1949 . The Dominion of Newfoundland was situated in northeastern North America along the Atlantic coast and comprised the island of Newfoundland and Labrador on the continental mainland...
in 1865. In 1873, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
changed over to the gold standard in conjunction with the new gold mark coin. The United States changed over to gold de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...
in the same year, and over the next 35 years, all other nations changed to gold, leaving only China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
and the British colonies of Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
and Weihai
Weihai
Weihai is a city in eastern Shandong Province, People's Republic of China. It is the easternmost prefecture-level city of the province and a major seaport. Between 1898 and 1930, the town was a British colony known as Weihaiwei or the Weihai Garrison , and sometimes as Port Edward...
wei on the silver standard. The silver standard finally came to an end when it was abandoned by China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
and Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
in 1935.
The relative value of silver and gold
Since the time that silverSilver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
was discovered by the Spanish
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
in the new world
New World
The New World is one of the names used for the Western Hemisphere, specifically America and sometimes Oceania . The term originated in the late 15th century, when America had been recently discovered by European explorers, expanding the geographical horizon of the people of the European middle...
in the 16th, until the latter half of the 19th century, the value of gold in relation to silver, maintained a relatively stable ratio of 15½/1. The reason for the subsequent sharp decline in the relative value of silver to gold has been attributed to Germany's decision to cease minting the silver Thaler
Thaler
The Thaler was a silver coin used throughout Europe for almost four hundred years. Its name lives on in various currencies as the dollar or tolar. Etymologically, "Thaler" is an abbreviation of "Joachimsthaler", a coin type from the city of Joachimsthal in Bohemia, where some of the first such...
coins in 1871. On 23 November 1871, following the defeat of France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
in the Franco-Prussian war
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
, Bismarck
Otto von Bismarck
Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg , simply known as Otto von Bismarck, was a Prussian-German statesman whose actions unified Germany, made it a major player in world affairs, and created a balance of power that kept Europe at peace after 1871.As Minister President of...
exacted one thousand million dollars in gold indemnity, and then proceeded to move Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
towards a new gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
which came about on 9 July 1873 with the introduction of the gold mark.
It has also however been suggested by Nevada Senator John Percival Jones in 1876 in a speech to the US Senate, that the downward pressure on the market value of silver began somewhat earlier with the formation of the Latin Monetary Union
Latin Monetary Union
The Latin Monetary Union was a 19th century attempt to unify several European currencies, at a time when most circulating coins were still made of gold and silver...
in 1866. Jones argues that the Latin Monetary Union
Latin Monetary Union
The Latin Monetary Union was a 19th century attempt to unify several European currencies, at a time when most circulating coins were still made of gold and silver...
involved a partial demonetization of silver.
Silver made a partial come back in the first decade of the 20th century, such that the silver dollar coins of the Straits Settlements
Straits Settlements
The Straits Settlements were a group of British territories located in Southeast Asia.Originally established in 1826 as part of the territories controlled by the British East India Company, the Straits Settlements came under direct British control as a crown colony on 1 April 1867...
and silver Peso
Peso
The word peso was the name of a coin that originated in Spain and became of immense importance internationally...
coins of the Philippines had to be made smaller in size, and with a reduced silver content in order to prevent their silver value exceeding their recently established gold exchange value. An even larger rise in the price of silver after the first world war
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
caused the Royal Mint
Royal Mint
The Royal Mint is the body permitted to manufacture, or mint, coins in the United Kingdom. The Mint originated over 1,100 years ago, but since 2009 it operates as Royal Mint Ltd, a company which has an exclusive contract with HM Treasury to supply all coinage for the UK...
in London to reduce the silver content of the sterling
Sterling
Sterling may refer to:* Sterling silver, a grade of silver* Pound sterling, the currency of the United Kingdom- Businesses :* Hotel Sterling, a former hotel in Wilkes-Barre, Pennsylvania, United States* Sterling Airlines...
coinage. But silver never returned to the 15½/1 ratio of the first half of the 19th century, and the predominant long term trend was that silver continued to decline in value against gold. Nowadays the ratio in relation to the value of gold, although variable, is more of the order of 50/1.
Ancient Greece
The first metalMetal
A metal , is an element, compound, or alloy that is a good conductor of both electricity and heat. Metals are usually malleable and shiny, that is they reflect most of incident light...
used as a currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
was silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
more than 4,000 years ago, when silver ingot
Ingot
An ingot is a material, usually metal, that is cast into a shape suitable for further processing. Non-metallic and semiconductor materials prepared in bulk form may also be referred to as ingots, particularly when cast by mold based methods.-Uses:...
s were used in trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
. During the heyday of the Athenian empire, the city's silver tetradrachm
Tetradrachm
The tetradrachm was an Ancient Greek silver coin equivalent to four drachmae. It was in wide circulation from 510 to 38 BC.-History:Many surviving tetradrachms were minted by the polis of Athens from around the middle of the 5th century BC onwards; the popular coin was widely used in transactions...
was the first coin to achieve "international standard" status in Mediterranean trade.
China
ChinaChina
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
had long used silver ingot
Ingot
An ingot is a material, usually metal, that is cast into a shape suitable for further processing. Non-metallic and semiconductor materials prepared in bulk form may also be referred to as ingots, particularly when cast by mold based methods.-Uses:...
s as a medium of exchange, along with the cast
Casting
In metalworking, casting involves pouring liquid metal into a mold, which contains a hollow cavity of the desired shape, and then allowing it to cool and solidify. The solidified part is also known as a casting, which is ejected or broken out of the mold to complete the process...
copper-alloy cash
Cash (currency)
The cash is a name for several historical currencies used in Asia. It is applied to units used in China, Vietnam, and Madras in British India. It is also occasionally used to refer to the Korean mun and the Japanese mon....
. The use of silver ingot
Ingot
An ingot is a material, usually metal, that is cast into a shape suitable for further processing. Non-metallic and semiconductor materials prepared in bulk form may also be referred to as ingots, particularly when cast by mold based methods.-Uses:...
s can be traced back as far as the Han dynasty (206 BC-220 AD). But prior to the Song Dynasty
Song Dynasty
The Song Dynasty was a ruling dynasty in China between 960 and 1279; it succeeded the Five Dynasties and Ten Kingdoms Period, and was followed by the Yuan Dynasty. It was the first government in world history to issue banknotes or paper money, and the first Chinese government to establish a...
(960-1280), those silver ingots were used mainly for hoarding wealth. During the Song Dynasty
Song Dynasty
The Song Dynasty was a ruling dynasty in China between 960 and 1279; it succeeded the Five Dynasties and Ten Kingdoms Period, and was followed by the Yuan Dynasty. It was the first government in world history to issue banknotes or paper money, and the first Chinese government to establish a...
, though first time in history the government became the sole issuer of paper currency after 1024, cast coins and silver ingots were still used as a medium of exchange. In the Shanyuan Treaty
Shanyuan Treaty
The Shanyuan Treaty in 1004/05 was the pivotal point in the relations between the Northern Song and the Liao Dynasties . The ruling class of the Liao were a people of nomadic origin known as the Khitan who rose in the northeast around present-day Heilongjiang Province...
, signed with the state of Liao
Liao
Liao can mean:* Liao Dynasty , a former dynasty in northern China founded by the Khitan people**Northern Liao , state founded by the Khitans in northern China...
in 1004, Song
Song Dynasty
The Song Dynasty was a ruling dynasty in China between 960 and 1279; it succeeded the Five Dynasties and Ten Kingdoms Period, and was followed by the Yuan Dynasty. It was the first government in world history to issue banknotes or paper money, and the first Chinese government to establish a...
China agreed to pay an annual indemnity or tribute of 100,000 tael
Tael
Tael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael, a part of the Chinese system of weights and currency....
of silver and 200,000 bolts of silk
Silk
Silk is a natural protein fiber, some forms of which can be woven into textiles. The best-known type of silk is obtained from the cocoons of the larvae of the mulberry silkworm Bombyx mori reared in captivity...
. This was the first time bulk silver in tael (Chinese: 銀兩) was used as indemnity in a treaty with a foreign power. Silver ingots had a shape similar to a boat or a Chinese shoe during the Yuan Dynasty
Yuan Dynasty
The Yuan Dynasty , or Great Yuan Empire was a ruling dynasty founded by the Mongol leader Kublai Khan, who ruled most of present-day China, all of modern Mongolia and its surrounding areas, lasting officially from 1271 to 1368. It is considered both as a division of the Mongol Empire and as an...
(1271–1368). This became an ordinary shape for silver ingots during the following centuries.
The use of silver as a medium of exchange was very established at the time of the Ming Dynasty
Ming Dynasty
The Ming Dynasty, also Empire of the Great Ming, was the ruling dynasty of China from 1368 to 1644, following the collapse of the Mongol-led Yuan Dynasty. The Ming, "one of the greatest eras of orderly government and social stability in human history", was the last dynasty in China ruled by ethnic...
(1368–1644). Paper money
Paper Money
Paper Money is the second album by the band Montrose. It was released in 1974 and was the band's last album to feature Sammy Hagar as lead vocalist.-History:...
were issued as monetary standard at the beginning of the dynasty. But due to the rapid inflation, the issues were suspended around 1450, although notes remained in circulation until 1573 (see Chinese currency
Chinese currency
The Renminbi is the official currency of the People's Republic of China . It is the legal tender in mainland China, but not in Hong Kong and Macau. It is abbreviated as RMB, and the units for the Renminbi are the Yuan , Jiao , and Fen : 1 Yuan = 10 Jiao = 100 Fen. Fen have almost disappeared, so...
). Meanwhile, silver was very much available through foreign trade with the Portuguese and the Spanish, beginning in the 16th century. The great taxation reform by Zhang Juzheng
Zhang Juzheng
Zhang Juzheng , courtesy name: Shuda , pseudonym: Taiyue , was a powerful Grand Secretary in the Ming Dynasty under the Longqing and Wanli emperors. Zhang was born in Jiangling, Hubei province, China and died in Beijing....
(Chinese: 張居正) in 1581 (9th year of the Wanli Emperor
Wanli Emperor
The Wanli Emperor was emperor of China between 1572 and 1620. His era name means "Ten thousand calendars". Born Zhu Yijun, he was the Longqing Emperor's third son...
) simplified the taxation and required all the tax and corvee to be paid in silver. This can be seen as an indication of the firm position of silver in the monetary system of the Ming. But the reform would not have been a success or even feasible if the enormous amounts of silver were not available through the trade and imports from America, mainly through the Spanish.
During the Qing Dynasty
Qing Dynasty
The Qing Dynasty was the last dynasty of China, ruling from 1644 to 1912 with a brief, abortive restoration in 1917. It was preceded by the Ming Dynasty and followed by the Republic of China....
(1644–1911), silver ingots were still used, but various foreign silver dollars had become popular in the Southern coastal region through foreign trade since the mid-Qing era. It was apparent that the silver ingots became awkward and more complicated to use viz-a-viz the foreign silver dollars, which could be counted easily, given their fixed specification and fineness of silver. However, the Qing dynasty very much resisted the idea of minting a silver coin of their own. It was not until late Qing, in 1890, that the first circulating silver coin was introduced by Guangdong
Guangdong
Guangdong is a province on the South China Sea coast of the People's Republic of China. The province was previously often written with the alternative English name Kwangtung Province...
province. The coin was at par with the Mexican Peso
Mexican peso
The peso is the currency of Mexico. Modern peso and dollar currencies have a common origin in the 15th–19th century Spanish dollar, most continuing to use its sign, "$". The Mexican peso is the 12th most traded currency in the world, the third most traded in the Americas, and by far the most...
, and soon this issue was emulated by other provinces. For these silver coins, the tael
Tael
Tael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael, a part of the Chinese system of weights and currency....
was still seen as the proper monetary unit, as the denomination of the coins were given as 0.72 tael (specifically: 7 mace and 2 candareen
Candareen
A candareen is a traditional measurement of weight in East Asia. It is equal to 10 cash and is 1/10 of a mace. It is approximately 378 milligrams. A troy candareen is approximately 374 milligrams....
s). The equivalent monetary unit yuan (Chinese: 圓, literally "roundness") hadn't appeared yet. Note for the treaties signed between the Qing dynasty and other countries the indemnities were all in taels of silver, except for the Treaty of Nanking
Treaty of Nanking
The Treaty of Nanking was signed on 29 August 1842 to mark the end of the First Opium War between the United Kingdom of Great Britain and Ireland and the Qing Dynasty of China...
, where the silver dollar was indicated. (See the Treaties of Tianjin, Convention of Peking
Convention of Peking
The Convention of Peking or the First Convention of Peking is the name used for three different unequal treaties, which were concluded between Qing China and the United Kingdom, France, and Russia.-Background:...
, Treaty of Shimonoseki
Treaty of Shimonoseki
The Treaty of Shimonoseki , known as the Treaty of Maguan in China, was signed at the Shunpanrō hall on April 17, 1895, between the Empire of Japan and Qing Empire of China, ending the First Sino-Japanese War. The peace conference took place from March 20 to April 17, 1895...
and Boxer Protocol
Boxer Protocol
The Boxer Protocol was signed on September 7, 1901 between the Qing Empire of China and the Eight-Nation Alliance that had provided military forces plus Belgium, Spain and the Netherlands after China's defeat in the intervention to put down the Boxer Rebellion at the hands of the...
). It was not until 1910 (the 2nd year of the Xuantong Emperor (Chinese: 宣統)) that the yuan, was officially announced as the standard monetary unit. The yuan was subdivided into 10 jiao (Chinese: 角) or 100 fen, and specified as 0.72 tael
Tael
Tael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael, a part of the Chinese system of weights and currency....
of 90 per cent fine silver. The next year, 1911, the so-called "Great Qing Silver Coin" one yuan (dollar) was issued.
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 90 per cent fine silver. After the Chinese Nationalist Party 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 gram
Gram
The gram is a metric system unit of mass....
s of 88 per cent fine silver. In the same year, 1933, while most of the Western countries (especially Britain and USA) had left the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
because of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, it was said that China almost avoided the depression entirely, mainly due to having stuck to the silver standard. (See Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
). 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 1935 in favor of the four Chinese national banks' "legal note" issues. China and the British colony of Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, which followed suit in this regard in September 1935, would be the last to abandon the silver standard. Hong Kong then adpoted the gold exchange standard and the Hong Kong dollar
Hong Kong dollar
The Hong Kong dollar is the currency of the jurisdiction. It is the eighth most traded currency in the world. In English, it is normally abbreviated with the dollar sign $, or alternatively HK$ to distinguish it from other dollar-denominated currencies...
took on the exact value of one shilling and three pence ("1s 3d") sterling
Sterling
Sterling may refer to:* Sterling silver, a grade of silver* Pound sterling, the currency of the United Kingdom- Businesses :* Hotel Sterling, a former hotel in Wilkes-Barre, Pennsylvania, United States* Sterling Airlines...
.
China's use of silver as a medium of exchange is reflected in the name for bank "銀行" (literally "silver house" or "silver office") and for the precious metal and jewel dealer "銀樓" (literally "silver building" or "silver shop").
Persia
The dirhamDirham
Dirham or dirhem is a unit of currency in several Arab or Berber nations, and formerly the related unit of mass in the Ottoman Empire and Persian states...
was a silver coin originally minted by the Persians. The Caliphate
Caliphate
The term caliphate, "dominion of a caliph " , refers to the first system of government established in Islam and represented the political unity of the Muslim Ummah...
s in the Islam
Islam
Islam . The most common are and . : Arabic pronunciation varies regionally. The first vowel ranges from ~~. The second vowel ranges from ~~~...
ic world adopted these coins, starting with Caliph Abd al-Malik (685–705). Silver remained the most common monetary metal used in ordinary transactions until the 20th century.
Bohemia
Beginning in 1515, silver coins were minted at the silver mines at Joachimsthal - JáchymovJáchymov
For other places called Joachimsthal, see Joachimsthal Jáchymov . compl: "Sant Joachim's Sthal" is a spa town in north-west Bohemia in the Czech Republic belonging to the Karlovy Vary Region. It is situated at an altitude of 733 m above sea level in the eponymous St...
(St. Joachim's Valley) in Bohemia
Bohemia
Bohemia is a historical region in central Europe, occupying the western two-thirds of the traditional Czech Lands. It is located in the contemporary Czech Republic with its capital in Prague...
, now part of the Czech Republic
Czech Republic
The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....
). Although formally called Guldengroschen
Guldengroschen
The Guldengroschen was a large silver coin originally minted in Tirol in 1486.The Guldengroschen's name comes from the fact that it has an equivalent denomination value in silver relative to that of the goldgulden...
, they became known as Joachimsthalers, then shortened to thaler
Thaler
The Thaler was a silver coin used throughout Europe for almost four hundred years. Its name lives on in various currencies as the dollar or tolar. Etymologically, "Thaler" is an abbreviation of "Joachimsthaler", a coin type from the city of Joachimsthal in Bohemia, where some of the first such...
.
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.
Spain
Rich deposits of silver in the Spanish colonies of the New World allowed Spain to mint great quantities of silver coins. The Spanish dollarSpanish dollar
The Spanish dollar is a silver coin, of approximately 38 mm diameter, worth eight reales, that was minted in the Spanish Empire after a Spanish currency reform in 1497. Its purpose was to correspond to the German thaler...
was a Spanish coin, the "real de a ocho" and later peso
Peso
The word peso was the name of a coin that originated in Spain and became of immense importance internationally...
, worth eight reals (hence the nickname
Nickname
A nickname is "a usually familiar or humorous but sometimes pointed or cruel name given to a person or place, as a supposedly appropriate replacement for or addition to the proper name.", or a name similar in origin and pronunciation from the original name....
"pieces of eight"), which was widely circulated during the 18th century.
By the American Revolution
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
in 1775, Spanish dollars backed paper money authorized by the individual colonies and the Continental Congress
Continental Congress
The Continental Congress was a convention of delegates called together from the Thirteen Colonies that became the governing body of the United States during the American Revolution....
. In addition to the American dollar, the 8-real coin became the basis for the Chinese yuan
Chinese yuan
The yuan is the base unit of a number of modern Chinese currencies. The yuan is the primary unit of account of the Renminbi.A yuán is also known colloquially as a kuài . One yuán is divided into 10 jiǎo or colloquially máo...
.
India
The Indian rupeeRupee
The rupee is the common name for the monetary unit of account in India, Sri Lanka, Nepal, Pakistan, Mauritius, Seychelles, Maldives, and formerly in Burma, and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century...
is derived from the Rūpaya, (silver is called rūpa in Sanskrit
Sanskrit
Sanskrit , is a historical Indo-Aryan language and the primary liturgical language of Hinduism, Jainism and Buddhism.Buddhism: besides Pali, see Buddhist Hybrid Sanskrit Today, it is listed as one of the 22 scheduled languages of India and is an official language of the state of Uttarakhand...
) in a silver coin introduced by Sher Shah Suri
Sher Shah Suri
Sher Shah Suri , birth name Farid Khan, also known as Sher Khan , was the founder of the short-lived Sur Empire in northern India, with its capital at Delhi, before its demise in the hands of the resurgent Mughal Empire...
during his reign from 1540 to 1545. Since this is around about the same time that the Spanish
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
discovered silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
at the Cerro Rico in Potosi
Potosí
Potosí is a city and the capital of the department of Potosí in Bolivia. It is one of the highest cities in the world by elevation at a nominal . and it was the location of the Spanish colonial mint, now the National Mint of Bolivia...
, the silver value of the rupee
Rupee
The rupee is the common name for the monetary unit of account in India, Sri Lanka, Nepal, Pakistan, Mauritius, Seychelles, Maldives, and formerly in Burma, and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century...
maintained a stable relationship with gold right up until the early 1870s. From 1871, the value of silver depreciated relative to gold, due to the drop in demand for silver in the mints of Europe and North America, as those countries changed over to the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
. This had severe consequences for the rupee
Rupee
The rupee is the common name for the monetary unit of account in India, Sri Lanka, Nepal, Pakistan, Mauritius, Seychelles, Maldives, and formerly in Burma, and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century...
and it resulted in the fall of the Rupee. Following the Fowler report
Indian Currency Committee
The Indian Currency Committee or Fowler Committee was a government committee appointed by the British-run Government of India on 29 April 1898 to examine the currency situation in India. Until 1892, silver was the metal on which Indian currency and coinage had largely been based...
, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
adopted the gold exchange standard in the year 1898, fixing the value of the rupee at exactly one shilling and four pence (1s 4d) sterling
Sterling
Sterling may refer to:* Sterling silver, a grade of silver* Pound sterling, the currency of the United Kingdom- Businesses :* Hotel Sterling, a former hotel in Wilkes-Barre, Pennsylvania, United States* Sterling Airlines...
.
Great Britain
Great Britain's early use of the silver standard is still reflected in the name of its currency, the pound sterlingPound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
, which traces its origins to before the Middle Ages (see Anglo-Saxon pound), when King Offa of Mercia
Offa of Mercia
Offa was the King of Mercia from 757 until his death in July 796. The son of Thingfrith and a descendant of Eowa, Offa came to the throne after a period of civil war following the assassination of Æthelbald after defeating the other claimant Beornred. In the early years of Offa's reign it is likely...
introduced the silver penny
History of the English penny (c. 600-1066)
The history of the English penny can be traced back to the Anglo-Saxon kingdoms of the 7th century: to the small, thick silver coins known to contemporaries as pæningas or denarii, though now often referred to as sceattas by numismatists. Broader, thinner pennies inscribed with the name of the king...
, which copied the denarius of Charlemagne
Charlemagne
Charlemagne was King of the Franks from 768 and Emperor of the Romans from 800 to his death in 814. He expanded the Frankish kingdom into an empire that incorporated much of Western and Central Europe. During his reign, he conquered Italy and was crowned by Pope Leo III on 25 December 800...
's Frankish Empire
Frankish Empire
Francia or Frankia, later also called the Frankish Empire , Frankish Kingdom , Frankish Realm or occasionally Frankland, was the territory inhabited and ruled by the Franks from the 3rd to the 10th century...
.
The early silver pennies were struck from fine silver (as pure as was available). However, in 1158, King Henry II
Henry II of England
Henry II ruled as King of England , Count of Anjou, Count of Maine, Duke of Normandy, Duke of Aquitaine, Duke of Gascony, Count of Nantes, Lord of Ireland and, at various times, controlled parts of Wales, Scotland and western France. Henry, the great-grandson of William the Conqueror, was the...
introduced Tealby penny. English currency was almost exclusively silver until 1344, when the gold noble
Noble (English coin)
The Noble was the first English gold coin produced in quantity, having been preceded by the Gold penny and the Florin earlier in the reigns of King Henry III and King Edward III, which saw little circulation....
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
Carat (purity)
The karat or carat is a unit of purity for gold alloys.- Measure :Karat purity is measured as 24 times the purity by mass:where...
fine guinea. Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds). 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
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
. In 1816, the gold standard was adopted officially, with the silver standard reduced to 66 shillings (66/-, 3.3 pounds), 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.
Germany
After its victory in the Franco-Prussian WarFranco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
(1870–71), Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
extracted a huge indemnity from France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
of £200,000,000 in gold, and used it to join Britain
United Kingdom of Great Britain and Ireland
The United Kingdom of Great Britain and Ireland was the formal name of the United Kingdom during the period when what is now the Republic of Ireland formed a part of it....
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 StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
adopted a silver standard based on the "Spanish milled dollar" in 1785. This was codified in the 1792 Mint and Coinage Act
Coinage Act (1792)
The Coinage Act or the Mint Act, passed by the United States Congress on April 2, 1792, established the United States Mint and regulated the coinage of the United States. The long title of the legislation is An act establishing a mint, and regulating the Coins of the United States...
, and by the Federal Government
Federal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
's use of the "Bank of the United States
First Bank of the United States
The First Bank of the United States is a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.-Banking History:...
" to hold its reserves, as well as establishing a fixed ratio of gold to the US dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
. 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
Bimetallism
In economics, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver; such a system establishes a fixed rate of exchange between the two metals...
standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real
Spanish real
The real was a unit of currency in Spain for several centuries after the mid-14th century, but changed in value relative to other units introduced...
. Because of the huge debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
taken on by the US Federal Government to finance the Revolutionary War
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
, silver coins struck by the government left circulation, and in 1806 President Jefferson
Thomas Jefferson
Thomas Jefferson was the principal author of the United States Declaration of Independence and the Statute of Virginia for Religious Freedom , the third President of the United States and founder of the University of Virginia...
suspended the minting of silver coins.
The US Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
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
Gresham's Law
Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." It is commonly...
, 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 bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s. 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
Franc
The franc is the name of several currency units, most notably the Swiss franc, still a major world currency today due to the prominence of Swiss financial institutions and the former currency of France, the French franc until the Euro was adopted in 1999...
; 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
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
as payment drained the circulating medium out of the economy. At the same time there was a dramatically expanded need for credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, and large banks were being charter
Charter
A charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified...
ed in various states, including those in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
by 1872. The need for stability in monetary affairs would produce a rapid acceptance of the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of 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
Bland-Allison Act
The Bland–Allison Act was an 1878 act of Congress requiring the U.S. Treasury to buy a certain amount of silver and put it into circulation as silver dollars. Though the bill was vetoed by President Rutherford B...
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
Silver Certificate
Silver Certificates are a type of representative money printed from 1878 to 1964 in the United States as part of its circulation of paper currency. They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act, which had effectively placed the United...
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
John F. Kennedy
John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....
responded with Executive Order 11110
Executive Order 11110
Executive Order 11110 was issued by U.S. President John F. Kennedy on June 4, 1963.This executive order delegated to the Secretary of the Treasury the president's authority to issue silver certificates under the Thomas Amendment of the Agricultural Adjustment Act.-Background:On November 28, 1961,...
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 murdered
John F. Kennedy assassination
John Fitzgerald Kennedy, the thirty-fifth President of the United States, was assassinated at 12:30 p.m. Central Standard Time on Friday, November 22, 1963, in Dealey Plaza, Dallas, Texas...
in 1963. But the Treasury was being emptied of silver rapidly; in March 1964 issuance of the Series 1958 Silver Certificate
Silver Certificate
Silver Certificates are a type of representative money printed from 1878 to 1964 in the United States as part of its circulation of paper currency. They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act, which had effectively placed the United...
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
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
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.