From Commodity to Fiat

Silver certificates, that is the paper currency itself, has little or no value in use, but it can be, in principle, exchanged for the silver that DOES have value in use. In theory, ideally, in principle, the silver with its value in use is the ultimate medium of exchange. However, in practice, in reality, the paper certificates with little or no direct value in use are the medium.

If the general public never exchanges the paper certificates for the metal, if the public loses track of how much metal is actually stockpiled to back the certificates, then the certificates need not be backed fully by the metal. This moves the certificates several steps closer to fiat money.

Two Sets of Silver

• The first period, 1878 to 1923, produced large-sized bills (about 25 percent larger than modern currency) in nine denominations ($1, $2, $5, $10, $20, $50, $100, $500, and $1,000). The designs and faces changed over the decades, coming closer and closer to the look of modern currency. The 1923 $1 silver certificate looks very much like a modern $1 Federal Reserve note. After 1896, bills in denominations exceeding $10 were removed from circulation.


• The second period, 1928 to 1957, produced small-sized bills that very much resembled modern currency (at least before Federal Reserve notes were redesigned in 1996). This more recent set of silver certificates came in three denominations ($1, $5, and $10). A cursory look shows little difference from Federal Reserve notes that were in circulation at the same time. The differences reflect the name ("Silver Certificate" versus "Federal Reserve Note") and issuing authority (U.S. Treasury versus Federal Reserve System).