Throughout history, governments hoarded silver as a store of wealth and as a means of payment. Silver was the first currency of international commerce and the foundation of almost all modern currencies (including the U.S dollar). Armies were paid in silver and wars were fought over it. Silver’s monetary role was so important that the word for money is “silver” in both French (argent) and Spanish (plata) while the Chinese word for bank is literally translated as “silver house”. The dollar sign itself is believed to stand for “Unit of Silver”.

Silver was the most common measure of wealth and governments jealously stockpiled it. The United States silver and gold reserves helped make the U.S dollar the most widely accepted currency in the 20th century and, for much of its history, it acted as a restraint on the excessive issuance of new, fiat currency.

The Gold and Silver Defaults

By 1968, the United States dollar was backed by about 1,540 million troy ounces of silver which could be redeemed by anyone through silver certificate dollar notes. Each one dollar note was exchangeable for 0.77 oz t of silver from the US Treasury, resulting in a 1.29 USD per oz valuation.

It all ended with the Vietnam War, which being unpopular with voters, was financed mostly with debt rather than war taxes, causing a large increase in paper dollars without a corresponding increase in gold/silver reserves. As silver appreciated due to currency printing the threat of a massive dollar to silver conversion loomed as a value exceeding USD 1.29 would mean an arbitrage profit for the converter.

To stem the tide of physical conversions, the United States defaulted on their Silver Certificate promises in 1968 citing “gold backed” Federal Reserve Notes as the alternative. It was a poor substitute however as it was illegal for US citizens to own physical gold at the time (read about Executive Order 6102) thereby making convertibility to gold possible only for foreign governments.