The Silver Certificate: Could It Happen Again?

The silver certificate was a curious, numismatic moment in silver, and yet it may contain a lesson we can apply in today's world. We may find ourselves going back to a silver and gold money standard.

The basic concept of the silver certificate seems almost unbelievable when you consider the way most of us understand money. The idea that the cash you have in your wallet actually represents something physical, and not just the potential goods it could purchase, is a completely foreign concept to most. It is, for me, one of the more subtle, yet fulfilling aspects of silver investing.

The Bland-Allison Act

The Bland-Allison Act, as it came to be known, was passed by Congress on February 28, 1878. The silver coins that were to be minted would be legal tender for all debts, like gold. These coins, however, were quite heavy, so the government applied their gold certificate strategy to the silver.

Suppose that there were five silver dollars in the treasury. The government would print a $5 certificate against the dollars, providing a somewhat easier medium of exchange. The idea was kept, and Series 1878 was printed in denominations of $10 to $1000. Certificates circulated, mainly in the $1 denomination, widely throughout the United States in the years following 1934.

However, they began to disappear from circulation during the 1940s and 1950s. The amount of certificates in circulation depended directly upon the amount of silver bullion in the treasury vaults.

In 1960, the price of silver was nearing $1.29, which meant that silver dollars were worth more than $1. People would receive their silver dollars, and melt them down for the bullion, thereby reducing the amount of silver in circulation, which was already declining.

In 1964, redemptions of silver certificates for silver dollars were halted. In the 1970s, large numbers of the remaining silver dollars in the mint vaults were sold to the collecting public for collector value.

Certificates were abolished by Congress on June 4, 1963.
The silver sertificate coincided with the U.S. Government's decision to sell most of its silver inventory.

The Lessons

The lessons of the silver certificate are simple, and yet seem so abstract when you consider today's system of interest, debt, and paper currency. The current system is not what created our standard of living. It only served to fulfill the natural tendency for humans to crave endless power, wealth, and status.

Paper currency is still valid legal tender without the silver certificate, instead being backed simply by the strength of the U.S. economy. According to the U.S. treasury, "The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are 'backed' by all the goods and services in the economy."

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