Silver Coin Commerce™

The term fiat money is used to mean:

• any money declared by a government to be legal tender.
• state-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard.
• money without intrinsic value.

Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat (Latin for “let it be done”) or decree, enforcing legal tender laws, previously known as “forced tender”, whereby debtors are legally relieved of the debt if they (offer to) pay it off in the government’s money. By law the refusal of “legal tender” money in favor of some other form of payment is illegal, and has at times in history (Rome under Diocletian, and post-revolutionary France during the collapse of the assignats) invoked the death penalty.

An example of fiat money is the new, international currency, the Euro. Its introduction changed the face of money, superseding many of the world’s oldest currencies.

Governments through history have often switched to forms of fiat money in times of need such as war, sometimes by suspending the service they provided of exchanging their money for gold, and other times by simply printing the money that they needed. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation.

In 1971 the US switched to fiat money indefinitely. At this point in time, many of the economically developed countries’ currencies were fixed to the US dollar, and so this single step meant that much of the western world’s currencies became fiat money based.

Following the first Gulf War the president of Iraq, Saddam Hussein, repealed the existing Iraqi fiat currency and replaced it with a new currency. Despite having no backing by a commodity and with no central authority mandating its use or defending its value, the old currency continued to circulate within the politically isolated Kurdish regions of Iraq. It became known as the Swiss Dinar. This currency remained relatively strong and stable for over a decade. It was formally replaced following the second Gulf War.

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References:

• Wikipedia.com
• gainesvillecoins.com

The Thaler was a silver coin used throughout Europe for almost four hundred years. Its name lives on in various currencies as the dollar and tolar.

The dollar (often represented by the dollar sign: “$”) is the name of the official currency in several economies, including the United States, Australia, New Zealand, Canada, the Eastern Caribbean territories, Hong Kong, Taiwan, Singapore, Brunei, East Timor, Ecuador, Suriname, El Salvador, Panama, and Belize.

The “Dollar” originated in the city of Joachimsthal in Bavaria (now Germany). Beginning in 1518, silver from the mines near Joachimsthal was minted into silver “thalers”, with a standardized weight of 29.2 grams. “Thal” means “valley” in German, therefore a “thaler” is a person or a thing “from the valley”.

Eventually, governments throughout Europe adopted this standardized coin for commerce. The silver came from many locations, and many different governments produced the coins, but they were all basically identical. Europe was on a “Dollar standard”…

European “thaler” coins from the 16th-18th centuries are shown above with a modern US quarter for comparison.

The Spanish silver Dollar emerged from the rich mines of the Spanish colonies of the New World, particularly Mexico. The Spanish Dollar became the most common coin in the American colonies, although silver dollars from throughout Europe also circulated.

In 1792, after the American Revolution, Congress adopted the European “thaler” or dollar as the standard in the new United States. They were following standard practice throughout Europe. The US Dollar was just a bit lighter than the original thaler, at 27.0 grams of silver.

In those days, gold and silver traded at a ratio that hardly varied over centuries. It was known as a “bimetallic” system. About 15 or 16 ounces of silver had the same value as an ounce of gold. Thus, the silver “thaler” system was also, in a sense, a gold system.

In time, gold became the central monetary basis rather than silver. Britain went to a “monometallic” (gold-only) system in 1816. The United States effectively put gold on top in 1834, although British-style monometallism was not wholly adopted until 1900. The Coinage Act of 1834 set the value of the US Dollar at $20.67/ounce of gold, or 1/20.67th of an ounce. This works out to 1.5048 grams of gold.

Thus, we see that the “dollar” as roughly 1.5048 grams of gold, or $20.67/ounce, has a history that dates back to the early 16th century and encompassed all of Europe. The “dollar” was an unchanging unit of account for 415 years, until 1933.

During this time, there were many experiments with floating, paper currencies. The US colonies had a wave of hyperinflation in the 1740s, and again in the 1780s. There was another round of currency devaluation during the Civil War. However, after the smoke cleared, they returned again and again to the stable gold Dollar.

Devaluation of the US Dollar took place during the Great Depression. In 1933, the Dollar’s value was reduced to $35 per ounce, or 1/35th an ounce of gold (0.8887 grams). The introduction of floating currencies in 1971 was then something of an accident. It was an unplanned consequence of Richard Nixon’s “easy money” policies of 1970. It was supposed to be temporary. As we can see now, however, it was one of the biggest changes to Western civilization in the past 500 years.

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References:

• Wikipedia.com
• goldnews.bullionvault.com

The Peace Dollar is a silver United States dollar coin minted from 1921 to 1928, then again in 1934 and 1935. Early proposals for the coin called for a commemorative issue to coincide with the end of World War I, but the Peace Dollar was issued as a circulating coin. 

Designed by Anthony de Francisci, the Peace Dollar was so named because the word PEACE appears on the bottom of the coin’s reverse. It contains 0.77344 troy ounces of silver, and was the successor to the Morgan Dollar, which had not been regularly minted since 1904. With the passage of the Pittman Act in 1918, the mintage of dollar coins was enabled to start again. Prior to the design and acceptance of the Peace Dollar, the Morgan Dollar was minted again for one more year in 1921. 

After a six-year pause in minting, the Peace Dollar was again minted in 1934 and 1935. It was minted briefly in 1965 (dated 1964), but no examples of this issue were ever released to the public and the entire mintage was supposed to have been melted. The Peace Dollar is the last silver dollar minted for circulation in the United States. 

History

The biggest hurdle faced by proponents of the new coin was that no dollar coin had been minted for general circulation in the United States since 1904, the last year of the Morgan Dollar series. The demand for silver dollars was so low that vast quantities of Morgans were still sitting in bank vaults. That hurdle was overcome with the passage of the Pittman Act on April 23, 1918. Sponsored by Nevada Senator Key Pittman, the Pittman Act allowed the US government to melt as many as 350 million silver dollars, and then either sell the bullion or use it to produce subsidiary silver coinage. Additionally, the law required the government to mint replacement dollars for any that were melted, with domestically purchased silver. 

Production of the Peace Dollar commenced on December 21, 1921, and it was placed into circulation on January 3, 1922.  That same day, President Harding was presented with the first Peace Dollar. Roughly one million examples were struck before it was realized that the relief on the coin was so high that it was difficult to strike, and the dies used were breaking at a high rate. Also, the coins were nearly impossible to stack. The relief was lowered considerably starting with the 1922 issue.  That year more than 84 million Peace Dollars were struck, the highest mintage of the series. 

After the Peace Dollar, production of dollar coinage did not resume until the Eisenhower Dollar in 1971. That coin, however, has no silver content, except for some sold directly to collectors by the Mint. Likewise, the Susan B. Anthony, Sacagawea dollars, and Presidential dollars that have been minted since the Eisenhower dollar contain no silver, making the Peace Dollar the last true silver dollar struck for circulation.

Design

Anthony de Francisci’s design featured his rendition of Lady Liberty on the obverse. His wife, Teresa, was the model for the sculpture.  The font used is an example of the then-popular Art Deco style. This is exemplified by the inscription, “IN GOD WE TRVST,” which uses the Latin angular “U”. 

The original design for the coin’s reverse featured a Bald Eagle holding (or standing on) a broken sword, symbolizing peace. This design was interpreted as one of defeat, rather than peace, so Chief Engraver Morgan altered the design to replace the sword with an olive branch (itself a symbol of peace).  The eagle is perched on a rock, facing a group of the sun’s rays. 

The design of the Peace Dollar drew considerable criticism upon its release. A few of the elements of de Francisci’s design that drew negative commentary were the open-mouthed Lady Liberty and the Latinized spelling of “trust.” The negative response was sufficient enough that the US Mint issued a statement on February 9, 1922, stating that the coin would not be withdrawn.  In recent years, however, coin collectors have come to view the Peace Dollar as an attractive and desirable coin. 

Mints

Mintmarks appear underneath the word ‘One’ on the reverse, and include: 

• no mark (Philadelphia Mint in Philadelphia, Pennsylvania)
• D (Denver Mint in Denver, Colorado)
• S (San Francisco Mint in San Francisco, California)

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References

Marotta, Michael E. “The Peace Dollar”.

Reiter, Ed. “The Lady on the Dollar”.

Yeoman, R.S., A Guide Book of United States Coins

The Morgan Dollar is a silver United States dollar coin. These dollars were minted from 1878 to 1904 and again for one more year in 1921. The Morgan Dollar is named after its designer, George T. Morgan, who designed both the obverse and reverse of the coin. The dollar was authorized by the Bland-Allison Act of 1878. It has a fineness of .900(90%), giving a total silver content of 0.77344 troy ounces (24.057 grams) per coin.

HISTORY

The Comstock Lode, one of the greatest silver strikes in history, was discovered in Nevada in the late 1850s. The strike put downward pressure on silver prices worldwide. In 1878 Congress passed the Bland-Allison Act which required the Treasury Department to purchase large amounts of silver, and to strike it as coins. For reasons of economy, the Treasury chose to strike the silver as dollars.

When the dollar was minted in 1878, it was the first dollar issued for American commercial use since the last Seated Liberty Dollar of 1873. The Trade Dollar was minted during this time period but was intended to be used for trade in the Orient. The dollar was continuously minted until 1904 when the supply of dollars in circulation was high and there was an absence of silver bullion. Then in 1918, the Pittman Act called for over 270 million coins to be melted for silver content. In 1921, the coinage of the Morgan Dollar resumed for that year and was replaced by the Peace Dollar commemorative that would become standard issue. Since 1921, many Morgan Dollars have been melted. Melting has mostly occurred when silver prices escalated because these dollars yield silver bullion.

Caches of Morgan Dollars produced at the Carson City Mint were discovered and were sold to coin collectors by the federal government in the early 1970s. Many of these dollars were uncirculated and are called GSAs (named after the General Services Administration) and come in black plastic holders that mimic the holders used for proof silver Eisenhower dollars of the period. These have become collectible items within the GSA encapsulation.

MINTS

Mint marks appear underneath the tail feathers of the bald eagle on the reverse between the letters “D” and “O” in “DOLLAR”. Mint marks include:

• CC (Carson City Mint in Carson City, Nevada)
• D (Denver Mint in Denver, Colorado)
• O (New Orleans Mint in New Orleans, Louisiana)
• S (San Francisco Mint in San Francisco, California)

Note that the absence of a mint mark is indicative of a coin minted at the Philadelphia Mint in Philadelphia, Pennsylvania.

Grading Morgan Dollars

VF20 Very Fine: Two-thirds of hairlines from top of forehead to ear must show. Ear well defined. Feathers on eagle’s breast worn.

EF40 Extremely Fine: All hairlines strong and ear bold. Eagle’s feathers all plain but slight wear on breast and wing tips.

AU50 About Uncirculated: Slight trace of wear on the bust shoulder and hair left of forehead and also on the breast and top edges of wings.

MS60 Uncirculated: No trace of wear. Has full mint luster but may be noticeably marred by scuff marks or bag abrasions.

MS63 Select Uncirculated: No trace of wear, full mint luster, few noticeable surface marks.

MS64 Uncirculated: Shows a few scattered contact marks. Good eye appeal and attractive luster.

MS65 Choice Uncirculated: Only light scattered contact marks that are not distracting. Strong luster, good eye appeal.

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The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986. It is struck only in the one-troy ounce size which has a nominal face value of one dollar and is guaranteed to contain one troy ounce of 99.9% pure silver. It is authorized by Title II of Public Law 99-61 (Liberty Coin Act, approved July 9, 1985). Its content, weight, and purity are certified by the United States Mint. In addition to the bullion version, the United States Mint has produced a proof version and an uncirculated version for coin collectors. The Silver Eagle has been produced at three mints: the Philadelphia Mint, the San Francisco Mint, and the West Point Mint. The American Silver Eagle bullion coin may be used to fund Individual Retirement Account investments.

Design

The design on the coin’s obverse was taken from the “Walking Liberty” design by Adolph A. Weinman which originally had been used on the Walking Liberty Half Dollar coin of the United States from 1916 to 1947. As this iconic design had been a public favorite—and indeed one of the most beloved designs of any United States coinage of modern times, silver or otherwise—it was revived for the Silver Eagle decades later. The obverse is inscribed with the year of minting or issuance, the word LIBERTY, and the phrase IN GOD WE TRUST.

The reverse was designed by John Mercanti and portrays a heraldic eagle behind a shield; the eagle grasps an olive branch in its right talon and arrows in its left talon, echoing the Great Seal of the United States; above the eagle are thirteen five-pointed stars representing the Thirteen Colonies. The reverse is inscribed with the phrases UNITED STATES OF AMERICA, 1 OZ. FINE SILVER~ONE DOLLAR, and E PLURIBUS UNUM, as well as the mintmark if applicable.

Value

American Silver Eagle bullion coins carry a face value of one dollar. This is their legal value reflecting their issue and monetization as coins. The coins are legal tender for all debts public and private at their face value of one dollar. This face value does not reflect their intrinsic value which is much greater and is dictated by their silver content and the metal’s spot price.

Mintages, and thus prices, of bullion, proof, and uncirculated Silver Eagle coins have varied widely, and the potential collector is advised to check a standard reference book before buying them. Generally, the bullion versions have been minted in the millions, while the proof and uncirculated versions were issued in the hundreds of thousands each. Most dates of the bullion issue are not particularly expensive (around $20 as of early 2010) and are traded at a small premium above the intrinsic value of the silver they contain; most proof versions (around $55–$60 as of 2010) and uncirculated versions (around $25–$90 as of 2010) sell for more. Some issues sell for significant sums, for example the 1995-W proof ($3,500 as of 2010) and the 2006 20th anniversary set containing a special “Reverse Proof” coin along with a regular proof coin and the new “Burnished Uncirculated” coin (over $300 as of 2010).

References:

“Publication 590: Individual Retirement Arrangements”. United States Department of the Treasury, Internal Revenue Service. 

“United States Mint Offers New ‘Legacies of Freedom’ Set”. United States Mint.

The Official Red Book: A Guide Book of United States Coins: 2011 (64 ed.). Atlanta: Whitman Publishing.

Recently there has been quite a bit of information out there in cyberspace about the potential for the US Dollar to lose its status as the world reserve currency.

What Is A Reserve Currency?

A reserve currency, or anchor currency, is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc.

This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. For major currencies, this transaction cost is negligible with respect to the price of the commodity. It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others.

History Of Reserve Currencies

Reserve currencies are widely recognized and used for international transactions. From a 1700 – 1900 historical perspective it has been argued by numerous monetary historians that the UK pound, French franc and Dutch guilder in the 1700s were in effect parallel reserve currencies. The fact that money in those times consisted of precious metals and was not printed on notes supports this. In the 1800s a similar picture was in place with the US dollar, Russian ruble, and the unified German Reichmark, being added to the list in the very late 19th century.

However, the modern conception of an international currency as a store of value for the international reserves of central banks and governments is a relatively recent development, arising only in the 19th century coinciding with the emergence of the international gold standard in the decades leading up to the First World War.

After World War II, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system the US dollar was placed deliberately as the anchor of the system, with the US government guaranteeing other central banks that they could sell their US dollar reserves at a fixed rate for gold. European countries and Japan deliberately devalued their currencies against the dollar in order to boost exports and development.

In the late 1960s and early 70s the system suffered setbacks due to problems pointed out by the Triffin dilemma, a general problem with any fiat currency under a fixed exchange regimen, as the dollar was in the Bretton Woods system.

Recently, nations, especially in Asia, have been stockpiling reserves at levels previously unknown, especially in US dollars, in an effort to strengthen export competitiveness by weakening their own currencies, and also to contain quick and large inflows of capital and buffer against financial crisis such as the Asian financial crisis.

On June 16, 2009, Russian officials suggested that they may invest more of their reserves in their BRIC partners. However the final BRIC communique did not mention the issue and so the Brazilian real closed lower against the Dollar.

On 7 September 2009, the United Nations conference on Trade and Development issued a report that blamed the dominance of the dollar for playing an important role in the recent build-up of global imbalances.

A brief account of the long history of reserve currencies and draws attention to the interesting phenomenon that, as in the case of the position of a country being the superpower of the world, it seems to be a “natural cycle” of around 100 years long. This has held true ever since the middle of the fifteenth century, with the Portuguese supremacy spanning about 1450-1530 to the Spanish (1530-1640), the Dutch (1640-1720), the French (1720-1815), the British (1815-1920) and the US from then(1920-?).

Potential Replacements As The Reserve Currency

There are several possibilities of a replacement. It could go back to a gold standard, remember that the main reasons the US dollar became the reserve currency was that it was not not only backed by gold,  it was also redeemable in gold.

China’s yuan, known officially as the renminbi could be a contender as well as the Japanese Yen or the Euro, but a more likely scenario than a single currency is the possibility of a basket of currencies called an SDR could be next in line.

So What Are SDRs?
From the International Monetary Fund:

“The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. The SDR also serves as the unit of account of the IMF and some other international organizations”

Or, in plain English, an SDR (Special Drawing Right) is an artificial, not an actual, currency. SDRs were originally fixed at a rate of 1 Dollar (or 0.888671 grams of fine gold), but now they’re made up of a weighted basket of currencies, currently:

• 44% US Dollar
• 34% Euro
• 11% Japanese Yen
• 11% Sterling

SDRs are often referred to as ‘paper gold’ and are confined to computerized transactions.

References

Wikipedia

What is A Reserve Currency?

The World’s Reserve Currency