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A Modern Silver Story


In 1965, the first blows of U.S. Mint coining dies onto copper-nickel dime and quarter blanks shattered a 170-year tradition of silver coins in everyday American commerce. Days earlier, 1964-dated dimes had been struck on silver blanks not much changed since 1796, but now silver was disappearing.


This article was first published 
 May 10,2007
 


The new dimes and quarters of 1965 were stuck on planchets composed of copper-nickel layers bonded to a pure copper core, a base metal 'sandwich' concoction that signified the end of precious metals in our circulating coinage. Not surprisingly, silver prices rose quickly soon after, and by 1968 the obsolete silver dimes contained twenty cents worth of silver (today they contain about 97c worth). A brisk speculative trade in silver grew during the 1960s, as the US Treasury ceased the coinage of silver and, more significantly, ended its policy of selling silver from its vast stockpiles accumulated in the years since the Silver Purchase Act of 1946.

Silver prices in the US have always been a political football, and a lot of the history of the US government's participation in the silver market defies rationality. One of the first pieces of legislation affecting our currency after the Civil War was The Coinage Act of 1873, which was immediately and universally described as the Crime of '73.

Five years later, Congress passed the Bland-Allison Act of 1878, which required the U.S. Treasury to purchase and coin tens of millions of ounces of silver annually. Although periodic coin shortages have occurred in our monetary history from time to time, in 1878 there was in fact a free-flowing surplus of silver coins in commerce. The law, promoted by Western representatives, was a multi-million dollar boondoggle written chiefly to benefit the owners of the Comstock Lode.

Not that government price support of the silver market was strictly an 1800s phenomenon. After World War II, the Silver Purchase Act of 1946 required the Treasury to purchase silver from all sources, domestic and foreign, at 90c/ounce and sell it to industrial users at 90.5c/ounce. Which certainly sounds like a fair enough spread, if you're in favor of government market-making, at any rate. But the results were that the U.S. Treasury became the highest silver buyer in the world, and from 1946 through the 1950s the Treasury's hoard of silver grew and grew.

By 1955 the national silver stockpile was nearly 3 billion ounces, far and away the largest single holding of silver ever accumulated in the history of the world. But the supply/demand balance had tipped. By 1959, as silver prices started to climb, the U.S. Treasury, which had functioned for decades as a dumping ground for excess silver production, became instead the low-cost supplier for this useful and adaptable precious metal. The vast pile began to shrink.

In addition to this holding of silver bullion, there were also in Treasury vaults over 300 million old silver dollars. Millions of these silver dollars were still sealed in the canvas sacks in which they had left the Carson City and San Francisco mints in the 1880s! Amazingly, these souvenirs of the political shenanigans that led to the Bland-Allison Act of 1878 were still around in government coffers some 75 years later, in theory being held to 'back up' the hundreds of millions of silver certificates that were in circulation.

By the early 1960s, rising silver prices and interest in the old coins had led to a drawdown of nearly all those cartwheels as citizens discovered the joy of buying these historic artifacts from the Treasury at face value!

So, by 1965, the Treasury was essentially out of silver dollars, had sold off most of its silver stockpile, and was discontinuing the use of silver in everyday coinage. The days of silver as both a monetary metal and major concern of the U.S. Treasury, were just about over.

Except the Treasury still had one last obligation owed to the silver markets.

From 1935 through 1962, every one-dollar bill printed and placed into circulation by the Treasury had been a silver certificate, entitling the bearer to one dollar's worth of silver (.77 ounces) at the monetary standard of $1.29 per ounce. Billions of notes bearing the silver promise had been printed during that time (over 4 billion from 1957 to 1962 alone) and, even allowing that the vast majority of those had been replaced by newer issues as they wore out, there were still hundreds of millions of them in circulation.

In 1963, the Bureau of Engraving and Printing began cranking out the new series $1 Federal Reserve notes, the first Federal Reserve issue of that denomination since 1914, in an effort to replace the older silver certificates in circulation. Yet it still remained that there were plenty of silver certificates in private hands, each bearing a promise to pay a dollar's worth of silver.

In fact, ever since the first issuance of silver certificates in 1880, they had been, both in theory and in practice, redeemable at the Treasury's cash window for silver dollars. But, with the supply of silver dollar coins in the Treasury vaults having been drawn down from some 400 million coins in 1954 to fewer than 4 million coins by the end of 1963, on March 25, 1964, Treasury Secretary Douglas Dillon announced that silver certificates would no longer be redeemable in silver dollars, but only in silver bullion.

And in a further effort to end the Treasury's silver dealings entirely, it was decided to set a deadline for the redemption of silver certificates into actual silver. On June 4th, 1963, Congress passed an act allowing holders of silver certificates only until June 24th, 1968 to convert them to silver. After that date, the notes would still be legal tender, but the silver clause would be moot.

With this deadline in place, the race for redemption was on! A commercial trade sprang up in silver certificates. Newspapers across the country began running ads from dealers offering to pay $1.10 for each silver certificate, then $1.25 as silver prices rose. Notes were being purchased by aggregators, bundled, and sent to the only two facilities which were authorized to dispense silver for the notes - The U.S. Assay Offices in New York and in San Francisco.

The Treasury Department had to honor the silver redemption clause, but they had no incentive to make it easy or convenient for citizens to convert their paper to silver. The treasury interpreted the law strictly and narrowly - a dollar's worth of silver (at the $1.29 per ounce rate) on demand.

Small holders were given little plastic bags containing more or less pure silver grains. For transactions larger than 100 ounces or so, the Treasury poured extremely crude silver bars of fineness greater than 90% and less than 99.9%. Today we know these bars as 'grease bars' - unstamped and unrefined, these crude bars are recognizable because they have their weight written on them with a grease pencil.

These ungainly forms of silver were the embodiment of the Treasury's attitude towards those citizens who turned in their certificates for silver - here's your silver, unmarked as to origin, weight, or fineness - in essence, as unattractive and unmarketable a product as could be legally produced.

However, a few U.S. Assay Office bars are known from that period that were stamped as to fineness and origin. These bullion items were refined and configured to the specifications of 'good delivery bars'- of 99.9% purity, and weighing approximately 1,000 ounces each. Conjecture is that these refined bars were released to the largest redeemers of silver certificates.

These bars, marked and assayed to .999 fineness, are stamped with the Eagle insignia of the U.S. Assay Office, but have no indication of weight. We have two bars to show, both dated "1968" within the insignia of the U.S. Assay Office, New York City.
 

 


 

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