Paper Money

Four years collectors spent turning paper into silver

Not everyone reads the “fine print,” but in the mid-1960s, reading and acting on the fine print found on a particular class of U.S. paper money meant big profits for thousands of individuals and businesses.

Intermediate paper money collectors have learned that certain classes of 19th century American notes have different legal redemption clauses. Advanced collectors who also happen to be lawyers may fully understand all of the fine print regarding tariffs and duties. Normal collectors — normal people — do not! And for that matter, don’t care — and never have.

But for less than half a decade, coin and paper money collectors alike were focused on the “fine print” of silver certificates, especially when profits could be made without guilt or great difficulty. It was, perhaps, the most interesting four years since the U.S. government began issuing silver-backed notes in 1878. 

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A time when the logic of converting silver coins into easier-to-carry paper was turned on its head. 

A time when all those silver dollars minted as a result of the Bland-Allison Act of Feb. 28, 1878, passed by Congress (over the veto of Rutherford B. Hayes) to monetize the newfound mineral wealth of Western America, were finally in demand. 

The 1878 act authorized not only a new silver dollar, it also offered an alternative linked to silver but more convenient to use. 

Because few Americans really wanted to carry pounds of silver dollars in their pockets, that 1878 act also authorized silver certificates of deposit. Accordingly, Americans lived their economic lives with folding paper while the vaults of the U.S. Treasury — and many banks — filled with bags of coins. 

But for that one shining period, even the public wanted to redeem paper money for a piece of the Comstock Lode and lore.

The silver certificates of the nineteenth century were made fully redeemable in silver dollars — and with this complete convertibility, the paper money was a perfectly acceptable substitute. 

When the size of American paper currency was reduced (from “large size” to “small size”) in 1929, the federal government technically made silver certificates even more desirable, by making them payable in any silver coins — and again, no one needed to care. Redemption of paper for silver was a moot point, as long as one dollar’s face worth of silver coins contained less than a dollar’s worth of silver metal. 

For that matter, the silver certificates circulated alongside Federal Reserve notes and United States notes in the 20th century, and no one cared except collectors interested in even more attractive notes. For most of the public, coins were heavy and annoying. In 1960, when I began collecting coins, I liked silver dollars, but it was because they were historic and heavy! 

The price of silver was about 90 cents an ounce (and the coins were made of 90 percent silver and weighed less than an ounce), so convertibility was more a theory than a practice.

A New Frontier for collectors

Then in 1961, everything began to change — for collectors and for the wider public. In 1961, the price of silver closed above $1 an ounce. The intrinsic value of a silver dollar was still less than $1 (as they do not contain an ounce of pure silver), but the Treasury grew concerned. Industrial and jewelry uses of silver were growing faster than mining, and the consequent production deficit forced prices higher. 

In November, President John F. Kennedy issued an executive order suspending further sales of government silver, and starting the retirement of $5 and $10 silver certificates. Silver continued its record appreciation, hitting $1.28 on March 13, 1963. By summer, it reached $1.29. Coin dealers smelled blood in the water. Then collectors noticed, too, followed by the public.

The U.S. government felt the imperative to do something, so it decided to fix the price of silver at $1.292929292~, the price at which a silver dollar (containing .7736 ounce of pure silver) had an intrinsic value equal to its face value. This had been silver’s benchmark price for much of the prior century. 

Just to be clear: if the price of silver rose higher in the marketplace, silver dollars would be worth melting for their intrinsic silver content. When understanding faileth, regulation followeth.

The government had to do something. On June 4, 1963, the Silver Purchase Act was repealed, and the issuing of silver certificates ended. Federal Reserve notes would become the currency of America, including a new $1 denomination. 

The government agreed to continue to redeem silver certificates with unspecified coins (any silver denomination), and critically, to continue to redeem them for silver dollars when presented at the cash windows of the Treasury Department. For decades, the Treasury had largely unsuccessfully tried to get rid of its silver dollars; its wish was about to come true, despite the new roadblocks!

Treasury vaults open

Collectors knew that some of those bags of silver dollar bags coming out of the basements of those vaults might contain more-valuable dates, and word soon leaked about. The public joined collectors at the Treasury’s cash windows, turning in silver certificates, and lugging home 60-pound bags of silver dollars, all acquired at face value. 

It was a great treasure hunt, but one still had to be lucky to profit from finding rarer issues. As often as not, the searched bags were turned in at local banks while waiting for silver to rise still higher. The lines forming at Treasury cash windows seemed to grow longer each day, as witnessed with photographs on the front pages of newspapers coast-to-coast.

The Treasury Department announced in January 1964 that silver dollars were flowing out of the vaults at the rate of 700,000 per week, and that only 28 million were left. To hasten the activity, some 11 million coins were shipped westward, especially to Las Vegas, Nev., for use by gamblers and casinos. There was no telling where valuable coins might turn up.

And still the lines grew longer. The Treasury announced on March 21, 1964, that 1 million silver dollars were leaving its vaults every day, and that only a two-week supply remained. On March 26, the Treasury announced that only 2.8 million silver dollars remained. If you are thinking that none of these numbers add up, you are correct, of course; government statistics are ... well, never mind.

The spigot is shut, mostly

The Treasury was unhappy with all these people legally profiting from their government; on March 26, 1964, Treasury Secretary C. Douglas Dillon announced a major change in redemption policy at the Treasury. Under little cover of law, he suspended redemption for silver coins and replaced it with bags of silver bullion. 

Dillon was quite correct that the public would not like this, and they didn’t — so many switched to redeeming notes for smaller silver coins at their local banks. The Wall Street Journal trumpeted that Dillon had driven “the money-changers out of his temple.” So much for professional courtesy. Small exchanges were done as envelopes of refined silver granules; large exchanges received silver bars. 

News of this “Treasury Treachery,” this blatant disregard of the legal contract implicit in the notes, spread throughout the public. 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! Life was good, very good, if you weren’t a true collector liable to find interesting things to save as all those coins passed through your hands.

Over a relatively short period, most of the silver certificates in circulation were redeemed. But for a glorious time, short as it was, Americans joined together to get dollars back from their government. 

And truth be told, plenty of collectors were born, as they started looking at the history in their hands. There was an implicit suspicion that if the government didn’t want you to have it, it was worth hanging onto. But we still all learned to use $1 Federal Reserve notes.

Nailing shut other barn doors

I worked for the government, but I’ll still say it — if one act is good, two are even better, and four are certainly necessary and proper. The Treasury became devoted to preventing Americans of all walks of life from making an honest profit.

Redemption of silver certificates was moved out of Washington, D.C., to Assay Offices in New York and San Francisco. Thus, a broker trade arose. And thank you, coin dealers.

As silver continued to rise, the Coinage Act of 1965 removed silver from the dime and quarter dollar and reduced the amount of the metal in the half dollar; in effect, the public had no choice but to accept fiat coins for their fiat paper. In fulfillment of Gresham’s Law, the public responded by pulling every silver coin out of circulation, for either immediate profitable conversion or held for even greater future increases.

Finally, on June 24, 1967, Congress passed the innocuous sounding Act to Authorize Adjustments in the Amount of Outstanding Silver Certificates and Other Purposes. This act allowed the Treasury to cease redemption on the theory that any outstanding silver certificates had been destroyed or were in the hands of collectors. 

But to be fair in their unilateral breaking of the social contract, and violation of issuing law, the Treasury didn’t lock the door on redemptions of silver certificates in silver until one year after adoption of the act. After that, they were only “... redeemable from any moneys in the general fund of the Treasury not otherwise appropriated.” That, of course, meant Federal Reserve notes.

What astonished everyone was how many millions of silver certificates emerged out of safes and safety deposit boxes, from under beds, and possibly from under wool skeins. Many Uncirculated notes still in their original wrappers received their first and only use in commerce — at redemption.

The Treasury also transferred its remaining silver holdings to the General Services Administration. On the plus side, the GSA did ultimately sell the Carson City Mint dollars that Treasury had held back from redemption because of their collector value (remember the discrepancy in the number of silver dollars remaining unredeemed mentioned earlier), but that is another story.

All official redemptions of silver certificates for silver — silver dollars, silver coins, or silver granules and bars — ended on June 28, 1968, ninety years after it started. Many new collectors were born, but the increase in note supply overcame the growing demand. The small but useful profits to be made at the height of that ‘silver rush’ still make old-timers smile. 

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