Coined freely versus denomination coined fiduciary?

RTS

What do the terms denomination coined freely versus denomination coined fiduciary mean? I think it means one denomination is a standard and other denominations are relative to the standard - any clarification appreciated - thank you.

DickyBetz

The way I see it is that coins that were minted freely would have their face value's amount of metal in them. For example, a quarter would have $.25 worth of silver in it. You would be able to buy these coins at the mint for face value using other worn out or older silver coinage or even gold or copper coinage. Our system was like this from the beginning of the mint until the Law of 1853 came into effect on April 1, 1853. The law made our dimes, half-dimes, and quarters sibsidiary coins which meant that they did not have the same amount of silver in them as what they were worth. Basically they were debased. The silver in them was reduced by 6.91%. You could only buy them from the mint with gold dollars that had $1 in gold in them. So, the mint made money. This is where the coins with arrows come from. It was to let the public know that there was no reason to hoard or melt the coins because their face value was worth more than their silver value. The mint made these new coins because of th impending shortage of silver coins because of the rising price of silver which fluctuated anywhere between 90 cents and $1.25. Hope this helps.

DaveG

Can you give us a hint by letting us know where you came across these phrases?

RTS

<< <i>Can you give us a hint by letting us know where you came across these phrases? >>



Taxay - U.S. Mint & Coinage - chapter entitled The Gold Interests Take Charge from page 195...

The eagle and silver dollar were to be coined free at a ratio of 15.625:1, but all other denominations were to be fiduciary, with a limted legal tender.

DaveG

Ah - got it now!

Bi-metalism is actually very interesting from an economic theory point-of-view.

When the US dollar was established, it was defined as a specific amount of either gold or silver. It seems obvious to us now that this presented an excellent opportunity for arbitrage. Speculators would buy large amounts of either gold or silver and export them to wherever was paying more for them. Example: if the world price for silver went down in terms of gold, then speculators would export gold, sell it for silver, bring the silver back to the Mint and get gold in exchange for the dollar amount of the silver.

As you know, the US ratio between gold and silver was not in sync with the rest of the world by the late 1790s, so silver dollars were exported and disappeared from the channels of commerce. The politicans of the time debated this problem endlessy during the 1820s - the problem was that none of them understood economics! (In 1816, Great Britain abandoned Bi-metalism in favor of a pure gold standard. The size -and weight- of silver coins were reduced and only gold had unlimited legal tender status.

In an over correction, the gold value of the dollar was reduced about 6% in 1834, so gold coins entered circulation and silver coins tended to disappear. This undervaluation of gold was exacerbated by the California Gold Rush, so silver coins were reduced in size in 1853.

However, in 1853, only the sizes of the half dollar and smaller denominations were reduced in size (which is why the silver dollar contains more than twice as much silver as a half dollar of the period. Half dollar = 12.44 grams; silver dollar = 26.73 grams).

The half dollar and smaller denomination coins were now "fiduciary" when compared to a silver dollar. This is why the half dollar and other "fiduciary" coins had a limited legal tender (up to $5) after 1853. Otherwise, a debtor could pay off a debt in quarters, which, when added up, would have less tangible value than the equivalent amount of silver dollars. (By this time, the gold/silver ratio was out of whack in the US anyway.)

If you're interested in this, check out Fractional Money by Neil Carothers.

RTS

Thank you DaveG.