What is the purpose of a silver certificate?

Answer 1

Silver certificates were a form of currency issued from 1862 to the early 1960s, although the last ones were all dated 1957. During those years the government both controlled the price of silver and kept large quantities of the metal on deposit with the Treasury. Each $1, $5, or $10 certificate that was printed represented that many dollars' worth of silver on deposit; i.e. the bills were "backed" by silver. The bills could be exchanged for an equivalent value in silver metal (coins or bullion) at many banks.

In the early 1960s the demand for silver skyrocketed due to its use in electronics and film Photography, among other things. That put pressure on the government to deregulate the metal's price and make a profit by selling its huge stocks on the open market.

However, deregulation and sale meant that there was no longer a fixed dollar-for-dollar backing of each bill in circulation. People started gaming the system by exchanging bills for silver, waiting for the price of silver to change, then selling the silver, and so on. To stop losses, the Treasury took two steps in the mid-1960s:

> First. production of all silver certificates was discontinued. $5 and $10 certificates had already been suspended in the 1950s, and starting in 1963 all $1 bills were issued as Federal Reserve Notes that couldn't be exchanged for precious metals.

> Second, any silver certificates still in circulation were no longer accepted for redemption in metal, although they could be spent at face value.