Under the rules of legislation that had been passed a year earlier, the U.S. government suspended all redemptions of silver certificates in 1968.
Although most Americans—even those old enough to remember—are unfamiliar with the idea of federally-issued notes that were backed by silver, these silver certificates (as they were commonly known) actually looked remarkably similar to today’s one-dollar Federal Reserve Note (FRN). You can see one below. There were even $5 and $10 silver certificates that a modern observer would probably recognize as “money.”
During a small window of about four years in the late 1960s, average savers and coin collectors alike took part in a frantic scramble to redeem their silver certificates before it was too late.
Simply put, during the era of the “gold standard,” the U.S. dollar was backed by a discrete amount of gold bullion. Technically speaking, a large chunk of this gold stockpile is still held as official reserves by the U.S. Treasury—more than 8,000 tonnes of the yellow metal. Though the redemption of dollars for gold was suspended at times, such as during wartime, this system generally held in place.
Both gold certificates and silver certificates were issued as paper currency. This was more convenient than carrying around heavy metal coins. Nonetheless, if desired, someone with one of these notes were entitled to the specified denomination worth of money “IN SILVER PAYABLE TO THE BEARER UPON DEMAND.” The first such silver certificates began circulating in 1878.
Because of the convenience of paper money, and the assurance that these federal notes were as good as the silver that backed them, people rarely had to redeem them. They served their intended function and traded on par with the value of a silver dollar. In 1929, laws were amended to allow for any denominations of silver coins to be given in exchange for a silver certificate.
Beginning in the early 1960s, the price of silver began to appreciate rapidly thanks to demand from jewelry and other industries outstripping supply. President Kennedy used an executive order to cease production of all but the $1 silver certificate in 1961. By the Spring of 1963, the price of silver hit the threshold where the melt value of a silver dollar (or any combination of silver U.S. coins that added up to $1 in face value) threatened to exceed its nominal value. On June 4th of that year, the Treasury stopped all issuance of silver certificates.
Obviously, such a situation would mean the Treasury could start losing money on the currency it had issued—an unthinkable case of negative seigniorage. Although it stopped producing silver certificates, the Treasury promised to continue honoring them for redemption of silver. The government needed a use for its mountain of Morgan silver dollars—authorized by the millions by the same Bland-Allison Act of 1878—sitting in the vault. Fittingly, millions of them ended up out west at Vegas casinos.
The frenzy of silver redemptions followed shortly. Coin dealers and hobbyists swarmed the Treasury’s cash windows in the hopes of finding a rare Morgan dollar. A few did, but even in the absence of a numismatic find, the high price of silver made these redemptions essentially a risk-free endeavor: Even less enthusiastic collectors could turn in their silver certificates and search through bags or rolls of coins for only the cost of their face value.
As Bob Korver explains for Coin World, “As silver continued to climb, anyone could take their silver certificates to their local bank, then take their silver coins to their local stamp and coin dealer, and make an instant profit. Those were the years!”
After 1964, the government stopped minting its coins with 90% silver content (though the half dollar remained a paltry 40% silver until 1970). Eventually, it stopped guaranteeing redemption in silver dollar coins and simply used any $1 combination of silver coins. Finally, the certificates were even redeemed with raw amounts of silver bars or granules.
It’s worth noting the correlation between the Treasury Departmen’s policy regarding silver certificates with the rising price of silver throughout the 1960s. In 1967, new legislation freed the government (perhaps on dubious legal grounds) from any obligation to redeem silver certificates. The feds did, however, allow a one-year window before officially demonetizing the notes. Instead of silver, people were paid in regular old FRNs.
The last redemption for a silver certificate took place on June 28th, 1968.
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