Why were silver certificates produced?

Answer 1

Silver and gold certificates were printed as a way of limiting and stabilizing the money supply. Each bill issued had to be backed by an equivalent amount of precious metal in the Treasury. The government controlled the prices of silver and gold so that a dollar's worth of either metal was always the same physical amount.

Not all bills were issued as certificates; many were simply "Fiat" bills that were backed by what was said to be the "faith and credit of the US". That is, they were backed by the acceptance of a large part of the population that the government and in particular the Treasury were extremely stable.

The one-for-one backing of certificates by precious metal was a double-edged economic sword because it limited the government's ability to expand the money supply. During good times it helped to prevent inflation and other artificial currency manipulations, but during bad times the government couldn't add to the money supply which made downturns worse. Entire libraries have been written about the matter so a further discussion is beyond the scope of this site.

The Great Depression forced the government to eliminate gold certificates so the money supply could be expanded. Silver certificates made up a smaller volume of money by dollar amount and remained in circulation, however.

As the 1950s ended worldwide demand for silver skyrocketed which put severe strain on the Treasury's stockpile. The world price rose above the US-controlled price, making it possible for people to "game" the system by trading silver certificates for silver metal, selling it on the open market for more than they paid, using that money to buy more certificates, and so on. By 1963 the government was forced to discontinue printing silver certificates, and soon after that redemption for silver metal was halted.

They were issued based on the US Silver standard and were presented under the premise that the note coud be redeemed for silver metal on demand.