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Silver standard

The silver standard was a monetary system, based on the precious metal silver. As one of the oldest and most commonly used metals in currency, silver was an obvious choice for the standard, but disadvantages meant that many countries soon turned to the gold standard instead.

It is because of the silver standard, and its huge role in the history of the world's financial system, that silver remains a key precious metal for investment to this day. Silver for many people is synonymous with money, and always will be.

Silver standard definition

The Silver standard, or Silver Exchange Standard, is defined as an international monetary system. In this system, the value of a currency – coins and paper money – is fixed to, and expressed in terms of, an amount of silver. Currency holders would either have the exact weight in silver or could, in theory, exchange their money for its equivalent value in silver.

The silver standard was used by many nations before being superseded by the similar gold standard. Today, however, international currencies are fiat currencies; that is currencies with values simply guaranteed by the issuing government without anything physical to back it.

Silver currency history

The origins of the silver standard dates back to the first use of coins. Early gold and silver coins were valued on their precious metal content alone – the face value of these bullion coins being identical to the value of the metal they contained.

The Pound Sterling was originally named due to the fact it was the equivalent of 240 silver pennies, weighing one pound weight of silver.

For large international trade, using precious metal meant the physical weight of silver coins could be extremely excessive. Transporting a large number of heavy silver coins was impractical as commerce expanded across the globe. To make exchange and trade easier, lightweight coins of various metals were used instead.

As a denser metal, gold become a popular choice in later years. More metal would take up physically less space, while gold's higher valuable also meant less metal was needed. On the other end of the scale, cheaper metals like brass or copper also began to find its way into national currencies. These were redeemable in exchange for the heavier, more valuable precious metals, which were held by the ruler who issued the coins. Such coins are termed token value coins.

As international trade grew, particularly during the late nineteenth century, it became generally accepted that circulation currency coins no longer held any intrinsic physical value, and simply represented a value exchangeable for either silver or gold.

Silver coins today

Today, there are no major economically developed countries using a silver standard currency, and circulating currency coins do not contain precious metals. Governments around the world do however mint legal tender, silver and gold bullion coins, intended for investment purposes.

Modern silver bullion coins, not backed by the silver standard.

Our three most popular silver bullion coins: the Canadian Maple, Silver Britannia, and Silver Eagle.

These bullion coins have values based on their metal content which far exceeds their face value. As legal tender they do enjoy tax advantages over bullion bars of the same weight.

BullionByPost stock a huge range of new silver bullion coins, plus numismatic and collectible coins, some dating back to the period in which the silver standard was still in use.

Disadvantages of a Silver standard

A major difficulty with a silver standard is the low value of the metal. In order to maintain parity with the metal value, silver coins can become physically large and heavy.

For governments and central banks, maintaining either a gold or silver standard becomes difficult as the metal's bullion value rises and falls. For example, following the California Gold Rush, the gold price in the US fell and the physical metal value of silver coins exceeded their face value. As a result, many silver dollars were taken out of the US, and melted into a more valuable ounce of silver in other countries.

Also, both gold and silver standards restrict financial movement and the ability of government to set interest rates. Many economists cite this as the cause of the “long depression” from 1873 until 1896, and the “Great Depression” in the 1930s. Fiat currencies allow money-printing when needed, though this of course brings its own risks.

What year did the silver standard end?

The silver standard is not currently being used by any country. China and Hong Kong were the last nations to use a silver standard, abandoning it in 1935. By this time, most nations had already moved to a gold standard.

The history of the silver standard is closely linked to the fortunes of the German Thaler coin. Named after Joachimsthalers in Bohemia, now the Czech Republic, where the coins were minted. The name Thaler would evolve to become the English word “Dollar”.

Silver Thaler coin, one of the original silver standard coins.

The first Thaler or 'dollar' – a 1525 Joachimsthaler coin of the Czech Kingdom.

For nearly 400 years the Thaler, in one form or another, was the preeminent European coin. It dated back to a Byzantine silver coin, and was valued on a silver standard.

In 1871, following the unification of Germany, Chancellor Bismark withdrew the German silver Thaler. It was replaced by the gold Mark; this effectively moved Germany from a silver standard to a gold standard.

For over a century before this time, silver had maintained a value to gold, in a ratio of approximately fifteen and a half to one. In terms of sheer physical volume then, moving from silver to gold had very real practical advantages. Gold’s high density means coins of the same weight are far smaller than their silver equivalent.

Britain had already moved to a gold standard in 1816, and the German move caused a huge slide in the value of silver.

The United States abandoned the silver standard in 1861, and by 1893 had effectively moved to a gold standard. In the intervening years it had been on a virtual bimetal system; that is a currency fixed to values in both silver and gold.

The move to a sole gold standard was fiercely opposed by many in the United States; in the “free silver” movement, including the eventual Secretary of State – William Jennings Bryan. He famously decried the move in a speech on July 9th, 1896. The Cross of Gold speech supported bimetallism and was concluded with the infamous line "You shall not crucify mankind upon a cross of gold".

Quote defending the silver standard made by William Jennings Bryan.

With the slide in value of the metal, silver coins around the world became token currencies linked to a gold standard; they were no longer worth their value in silver, but came to represent a value in gold.

Following the silver standard, the gold standard in different guises continued until 1973. In that year, the United States, under Richard Nixon, abandoned the gold standard and pure fiat currencies became the global norm.