Silver Coin Commerce™

History of Silver Coins & Bullion

People in the older times did not use any form of currency to purchase the things they needed. They just traded their goods at the market place and exchanged things they had for things they wanted or needed. As time passed, people began to learn the value of currency. They started to use money as an instrument to purchase goods and services. Because silver has always been considered a valuable commodity, they minted silver coins as their first currency many hundreds of years ago.

Roman silver coins served as an important means of political propaganda. The Romans also used silver coins as a powerful way of paying their legions. These coins were used for most daily transactions by administrators, traders and for army pay. 

In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for the nation’s coinage until its use was discontinued in 1965.

Paper Silver

Paper silver or silver futures can be a confusing subject for many people. After all, what does it have to do with how to buy silver? To understand silver futures, one needs to understand what a futures contract is.

What is a Futures Contract?
A futures contract is a contract, traded on a special stock exchange called a futures exchange. The idea is to buy or sell, what is called, a certain underlying instrument, in this case silver, at a certain date in the future, at a specified price. Basically it is a bet that something will be worth something at sometime in the future. This gives new meaning to the word nebulous as no one can predict with accuracy what the value of a commodity will be at some date in the future. You can, of course, find heaps of experts that give advice or guidance but, intimately, no one really knows what the price is going to be.

Obligations of a Futures Contract
A futures contract is different to an option. Whereas with an option the holder simply has an option to buy or sell, the futures contract contains, as part of the contract, an obligation. You are required by law, in other words, to pay.

Both parties of a futures contract must fulfill the contract on the settlement date unless you opt to roll over in to the next months contract. Then cash is transferred from the futures trader who sustained a loss to the one who made a profit. Most futures trading is done on a cash settlement basis these days.

What are Silver Futures?
Silver futures are simply futures contracts where the commodity is silver. This is usually in the form of weight.

Futures contracts, or simply futures, for silver are usually 5000 troy ounces, One would trade in parcels or multiples of 5000 troy ounces, and the exchanges clearinghouse would act as counterparty on all contracts, setting margin requirements, and so forth.

Silver futures and options, currently trade on many exchanges around the world. In the U.S. it is primarily traded on COMEX (Commodity Exchange), a subsidiary of the New York Mercantile Exchange. Other major trading countries all have own futures and options (called derivatives) trading floors.

In short, silver futures are a bet that the price of silver is going to be at a specific price at some time in the future. This could be a high or a low price. If you are wrong you have to cough up the money, if you are right, you get the funds to the value of the current silver price on settlement day from the other trader

How Does a Silver Futures Contract Work
You simply agree to buy, say for example 5000 ounces of silver, in three months to the day at 16 dollars per ounce on that day. That future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. If an ounce of silver on that day is worth 20 dollars, you win as you are only paying 16 dollars for an ounce of silver that is considered to be worth 20 dollars. You would have made 4 dollar an ounce profit, and the seller loses as you are only paying 16 dollars for something that is worth 20 dollars. If the price of silver goes down in the interim to 13 dollars, then you will find yourself paying 16 dollars for something worth only 13 dollars. That is a nasty situation to say the least. You will have lost money! Of course you do not get the silver. It is all a cash transaction so you cannot, if you lose, collect the silver and hold onto it in the hope it will go up again and you can sell it. However you can roll it over into another contract.

The big issue here is the leverage. You don’t have to pay up front all that you are buying, only a percentage of between 1 and 10 percent. Of course if you win you can win a lot of money. Most people lose and that means they do not just lose the percentage of dollars they put down but the entire amount they bet.

You have to have sufficient funds to back up your call so you can ride out the dramatic changes that can occur from one moment to the next.

This is all done on a cash basis in most markets and in practice you would be working with a dealer so there is no “taking the silver and run.”

This explains why silver futures traders are usually professional dealer with large capital bases who are buying and selling for large institutions, and even they can lose big time.

Quite honestly you would probably have a better chance of winning at the casino.

Conclusion

There are pro’s and con’s to each type of silver mentioned above, and as a footnote I have attached a link to a story that explains the recent accusation of JP Morgan’s manipulating the silver futures market.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/30_Andrew_Maguire_%26_Adrian_Douglass.html     What do you think about this?

Reference:

Silver Futures

ArminVoigt                                                                                                                                                                                                                                                                                                                                                                                                                        Via ProBlogPartners™

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

One of the things we’re attempting to do here at SilverCoinCommerce™ is to present information that is not only interesting, but also well researched and easy to read. If you can imagine, this means we get to go out and explore different topics, and learn about them ourselves (with the disclosure that we are learning with you). We do not claim to be experts, we’re simply following our own path in the belief that we need to be more aware of the inner workings of our economic system in the U.S.

In line with that train of thought, I would like to present the following:

We all hear the newsies and economic forecasters referring back to the depression in the earlier part of the 20th century. But what was going on beforehand? Something I ran across recently was The Free Silver Movement. Sounds good, right? Well, this happened in the 1870’s.

Here is a synopsis:

During the last quarter of the 19th century, “Free silver” meant that silver bullion could be brought into the mint and exchanged for silver coins. The math was 3.7125 grains of silver could be exchanged for $1 silver dollar.

In 1873 Congress enacted the Coinage Act of 1873, which included no provision for the coinage of silver. Silver’s market value was much higher than the mint price so no silver coins were being minted. The Coinage Act of ’73 would later be condemned as the “Crime of ‘73”.

There were two sides to this story, on one hand we had the working people (populist), farmers, miners and such, who wanted to be able to conduct trade in silver dollars. In their view, silver would add to the money supply in such a way as to raise prices [of their goods and services] and reduce their debt burden.

The other side which consisted of bankers and elite, believed doing so would devalue their holdings. The world was rushing to a gold standard that left little room for silver. From 1850 to 1872 the market price for an ounce of silver stood above $1.32.

The free silver movement enjoyed limited success in Congress. In 1878 Congress enacted the Brand-Allison Act, which required the Treasury to coin between 2-5 million dollars worth of silver coins per month. In 1890 the Sherman Silver Act required the Treasury to purchase $4 million dollars worth of silver per month, and issue silver certificates.

The Sherman Silver Act was blamed for a crisis of confidence in the American monetary system. President Cleveland, a staunch advocate of the gold standard, prompted Congress to do away with the silver purchase provisions in the Sherman Silver Act.

So, what is the relevance of this today? Well, interestingly, I think it may exhibit the same issue we are trying to address at SilverCoinCommerce™ How do we determine the worth of a dollar? And who has control over this value? Obviously, we feel the same about paper and digital creation of money, as the Bankers might have thought about silver back during this time. They thought it would de-value their “gold backed” dollars. And they were probably right. But silver still takes effort to get out of the ground and has proven, through time and utility, that it has real, tangible value, digital and paper dollars –don’t-.

The bigger, and more inherent point, is that SilverCoinCommerce™ is, and always will be, good for us common folk.

Pete Skenandore
Via ProBlogPartners™