What is the 'Silver Standard'

The silver standard is a monetary arrangement in which a country's government allows conversion of its currency into fixed amounts of silver and vice versa. Under the silver standard, the determination of a currency exchange rate has a basis on the economic difference for a set amount of silver between two currencies. The use of a silver standard was widespread over centuries before being abandoned globally in the early 20th Century.

BREAKING DOWN 'Silver Standard'

The silver standard is believed to date back to ancient Greece, where silver was the first metal used as a measure of currency. After the fall of the Roman Empire, the adoption of the silver standard was widespread and included its use in China, India, Bohemia, Great Britain and the United States. The silver standard officially came to an end when China and Hong Kong abandoned it in 1935. At this time, the adoption of the gold standard began.

The Silver Standard in the United States

For the first 40 years of its existence, the U.S. operated on a bi-metallic system of gold and silver. However, silver coins were the favored currency, and domestic purchases made with gold were rare. The Founding Fathers wrote a bi-metallic gold-silver standard into the United States Constitution. 

The Coinage Act of 1792 defined a dollar in regards to silver. A dollar was to be 371.25 grains of silver, equivalent to about three-fourths of an ounce. This measure was in harmony with the Spanish milled dollar, popular and used at the time as a standardized currency. In 1834 Congress adjusted the silver-to-gold ratio from 15-1 to 16-1. This adjustment made gold cheaper relative to the world market price ratio. Silver exportation grew, and by 1850, silver coins all but disappeared in the U.S. Gold then became the principal form of currency.

The U.S. abandoned the gold standard briefly during the Civil War. And in 1862 for the first time, issued fiat money with no convertibility into silver, gold or any other metal. In 1873, Congress moved to sideline the silver dollar. This change sparked the Free Silver Movement, which demanded to allow the supply of silver coins to increase based on demand. In 1878, due to the Free Silver Movement, the silver dollar was restored as legal tender. In 1879, Congress froze the amount of paper money in circulation at $347 million, where it remained for about a century.

Congress authorized the Federal Reserve in 1913, as a lender of last resort. The Federal Reserve would not function as a central bank and would not replace gold and silver as money. The Federal Reserve Notes in circulation today while carrying the name dollars are not Constitutional dollars. Instead, they are bank notes accorded legal tender status by government fiat.

RELATED TERMS
  1. Silver

    Silver is an element commonly used in jewelry, coins, electronics ...
  2. Silver Certificate

    A silver certificate was a form of legal tender issued by the ...
  3. Bimetallic Standard

    A system where a government recognizes coins composed of gold ...
  4. USD

    The USD is the abbreviation for the U.S. dollar.
  5. The Coinage Act Of 1792

    The Coinage Act of 1792 is a regulation passed by Congress on ...
  6. Monetary Reserve

    A monetary reserve is a central bank's holdings of a country’s ...
Related Articles
  1. Investing

    An Introduction To Trading Silver Futures

    Silver Futures are becoming popular trading instruments. Here is a primer on how to trade them.
  2. Investing

    A Silver Primer

    Find out what affects the price of silver, the types of investments that can be made and the methods in which it is traded.
  3. Investing

    Why Gold and Silver Prices are Diverging (GLD, SLV)

    Gold and silver prices are seeing a big performance divergence in 2016. Here's why.
  4. Investing

    The world's top 5 silver mining companies

    Discover the five top silver mining stocks, which can be seen as low-cost alternatives to stocks in volatile markets.
  5. Investing

    All That Glitters: Top 3 Silver ETFs of 2018

    You can profit from the price movement of silver without physically owning the metal.
  6. Investing

    Silver Poised for a Rebound (SLV, SIVR)

    After a stunning loss on Tuesday, silver is seeing a recovery on moderating U.S. dollar strength.
  7. Investing

    Assessing Silver Standard's Valuation (SSRI)

    Silver Standard is expected to underperform where it matters the most -- on the bottom line.
  8. Investing

    Is It Finally Time To Buy Silver?

    As the precious metal space has given up many gains in the wake of a strengthening global economy, silver remains a value. The metals industrial side will help propel it higher over the next ...
  9. Investing

    (BK, SIVR, AGQ) 3 Bond ETFs in the Silver Sector

    Find out about the top ETFs that track the silver sector, such as the iShares Silver Trust ETF, ETFS Physical Silver Shares ETF and ProShares Ultra Silver ETF.
  10. Investing

    The Best Way To Buy Silver

    Discover whether ETFs or physical bullion is the best way for investors to get exposure to silver.
RELATED FAQS
  1. Does Warren Buffett invest in gold? Why or why not?

    Discover what Warren Buffett's investment stance is toward gold and silver, why he likes one of them a lot and the other ... Read Answer >>
  2. What burst the Mississippi bubble?

    The Mississippi bubble is actually more of a currency blunder than a true speculative bubble. Read Answer >>
  3. What is the difference between fiat money and legal tender?

    Learn more about fiat currency and legal tender. Find out how these terms are used by economists to describe different types ... Read Answer >>
  4. When did the U.S. start using paper money?

    The roots of paper money in the U.S. dates back to the 1600s in Massachusetts, when the pioneering colony printed bills and ... Read Answer >>
  5. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
Trading Center