While we are now used to fiat currencies like the U.S. dollar, which are unbacked by precious metals and subject to fluctuating exchange rates, this hasn’t always been the case. In ancient times, humans bartered for the goods and services they needed by specializing in a niche product or skill. Slowly, valuable commodities gained popularity as the preferred method of business exchange, and these were then replaced by representative currencies backed by precious metals.
Overwhelmingly, humans have picked gold and silver as their precious metals of choice, with silver sometimes favored over gold.
The Early History of Silver as Currency
Silver has been used as a currency since ancient times. Originally, the peoples of Mesopotamia and Egypt used it as an unregulated weighted currency, where people obtained more goods with heavier pieces of silver. The first silver coin didn’t arrive until either the sixth or seventh century B.C., when the Lydians created a coin made of a silver-and-gold alloy called electrum. Silver coins would go on to be used by Greeks (drachmas) and Romans (denarii), and eventually throughout the world. Coins of uniform value were introduced with the invention of minting.
Silver as Currency in the United States
Though many people know of Nixon’s decision to get the country off the gold standard in 1971, far fewer realize how extensive the battle between the silver and gold standards was earlier in the country’s history.
Ever since the country’s founding, silver has played a crucial role in the Unites States’ wealth.
- 1789 – The U.S. Constitution becomes the supreme law of the land, allowing Congress to coin money and prohibiting states from doing the same.
- 1792 – Congress passes the Coinage Act (or Mint Act) of 1792, founding the U.S. Mint. Under this act, the U.S. dollar and many divisions of silver coins are created. The U.S. operates under bimetallism, a combined gold and silver standard.
- 1834 – Congress passes the Coinage Act of 1834, changing the silver to gold ratio from 15:1 to 16:1.
- 1853 – Congress passes the Coinage Act of 1853, which reduces the amount of silver in U.S. coins in response to a silver shortage. This inches the country closer toward the gold standard.
- 1873 – Congress passes the highly controversial Coinage Act of 1873, which demonetizes silver and puts the country on the gold standard. Opponents – such as farmers, silver mine owners and debtors – join the Free Silver Movement and dub this the “Crime of ‘73.” During this same year, Americans experience a long financial depression known as the Panic of 1873.
- 1878 – Congress passes the Bland-Allison Act, attempting to respond to opponents of the gold standard. The act reintroduces a limited amount of silver dollars to the U.S. financial system. Neither political side is particularly happy with the compromise.
- 1890 – “Silverites” claim the Bland-Allison Act doesn’t do enough, so Congress passes the Sherman Silver Purchase Act, which increases the federal government’s monthly silver purchases to 4.5 million ounces.
- 1896 – Discontent from Democrats culminates in William Jennings Bryan’s impassioned “Cross of Gold” speech, which makes a plea for a return to bimetallism and demonizes the gold standard.
- 1900 – Congress passes the Gold Standard Act, tying the value of the dollar to the value of gold and putting an end to the bimetallism debate once and for all.
- 1944 – At the end of WW2, delegates from 44 countries gather in New Hampshire for the United Nations Monetary and Financial Conference. They come to the Bretton Woods Agreement, which ties countries’ currencies to the value of gold to stabilize exchange rates and creates the International Monetary Fund.
- 1965 – Congress passes the Coinage Act of 1965, which reduces silver content in quarters and dimes to zero and in half dollars to 40 percent. This legislation is a response to silver scarcity and coin shortage concerns.
- 1971 – President Richard Nixon makes paper money inconvertible to gold, effectively casting aside the Bretton Woods Agreement and getting the U.S. off the gold standard. This decision came to be called the “Nixon shock.” It had effects worldwide, leading to the rise of fiat currencies.
Silver as a Modern Investment
Nowadays, the United States uses fiat money (money unbacked by items of value, such as precious metals) printed off by the federal government. The worth of fiat money is determined by three things:
- The federal government’s decree that fiat money is legal tender – Each U.S. dollar is imprinted with the words, “This note is legal tender for all debts, public and private.” The money is printed by the Federal Reserve, meaning the U.S. government endorses its value as a currency.
- The value that people assign to the money – People must be willing to trade goods or services for fiat money or else it loses its effectiveness. If no one believes in or recognizes the value of the U.S. dollar, it essentially becomes valueless.
- Supply and demand – Money is only worth what you can trade for it. In a period of inflation, where the supply of dollars exceeds the amount of goods produced and services provided, the value of the dollar decreases. In a period of deflation, the amount of dollars is less than the amount of goods and services, and the value of the dollar increases.
For these reasons, many people view the U.S. dollar as an inherently valueless form of currency that will only continue to suffer from hyperinflation over the coming years, eventually leading to a crash in the U.S. economy. Some prefer to have a form of precious metal investment – whether that be stocks or mutual funds in precious metals, a precious metal IRA or silver coins or bars – to provide a more stable source of wealth should the value of the U.S. dollar continue to decrease or collapse completely. Though the value of silver is volatile, it has continued to remain a valuable commodity over the course of human history.
Invest in Silver with Texas Bullion Exchange
With fiat currency always in flux, it can help to diversify your assets with an investment in silver. At Texas Bullion Exchange, we offer a wide selection of United States Mint, Perth Mint, Royal Canadian Mint and other mint silver bullion as well as silver bars, silver rounds, silver bullets and IRS silver products. Call us today at (855) 344-COIN (2646) to take the first step toward securing your financial future.