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HART & DICE &t?0rthanb firyortrre 416 FIFTH STREET N. WASHINGTON. urned, with Jpanks, D. W. C. to Mr. This document was loaned to the official reporter for his use in preparing transcript of hearing. ^ Reporter. I ND E X Page Calendar of Legal Action Components of Silver Monetary Stoclc Does the Issuance of Silver Certificates Save Interest to the Public? Effect of Silver Purchases upon Bank Reserves. Effect of Silver Purchases upon Types of Money in Circulation Government "Profit" on Issuing Silver Currency . 17 10 4 1 2 3 Net Silver Imports to United States, 19?4--8.. IS Present Legal Status of the Silver Program ... Prices of Silver in United States 9 14 Silver Acquired by U.S. Treasury, 19o4-38 .... Silver Almost Useless as an International Reserve . Silver and the Balance of International aver production (in millions of fine ounces) 11 7 6 13 U.S. Silver Buying Has Weakened Other Sources of Demand for Silver 8 World Supply and Consumption of Silver 15 EFFECT OF SILVER PURCHASES UPON BANK RESERVES The issuance of silver certificates and silver coin by the Treasury increases the volume of reserves at member banks. From the end of 1933 through 1938 additions to member bank reserves resulting from silver purchases amounted to §1,220,000,000. Total increase in reserves during this period was #6,000,000,000. To what extent gold imports would have been larger in the absence of silver purchases, it is impossible to say. During the past year silver purchases increased reserves by $200,000,000, of which $40,000,000 represented silver from domestic mines. EFFECT OF SILVER FOR CHASES UPON TYPES OF MONEY IN CIRCULATION Since the total amount of money in circulation in this country is determined by the requirements of business and the general public, the issuance of silver certificates does not change the amount of currency outstanding, but results in the substitution of silver certificates for the same amount of other currency in circulation. Since the end of 1933* silver certificates and coins in circulation increased by about $1,000,000,000, while other types of non-reserve currency declined by $900,000,000, chiefly reflecting the retirement of national bank notes. Federal Reserve currency increased by #1,200,000,000 during the period. 3- GK)VERMENT "PROFIT" ON ISSUING SILVER CURRENCY The Government buys domestic mined silver at 65 cents an ounce and other silver currently at about 43 cents an ounce. It can issue silver certificates at the rate of $1.29 to an ounce of silver. Hence it is argued that acquisition of silver involves no cost to the Government - rather it is a source of profit. This is misleading. The silver behind the silver certificates is a real cost to the Government in the sense that it is unnecessary. The Government could issue just as good currency without the cost of acquiring silver. United States notes, for instance, are as good currency as silver certificates. Both depend for their domestic value on the credit of the Government and both depend for their international value on the ability of holders, directly or indirectly, to obtain gold for export at a fixed price. Prom this point of view the money paid for the silver back of silver certificates is a waste: the cost of paper alone would serve as well. But the issuance of paper money by the Government in any form adds to bank reserves and makes the problem of credit control, which has been made difficult by the inflow of gold, that much more difficult. DOES THE ISSUANCE OF SILVER CERTIFICATES SAVE INTEREST TO THE PUBLIC? It has been stated that the circulation of Federal Reserve notes involves interest payments, while the circulation of silver certificates does not. The fact is that the issuance of Federal Reserve notes as such does not involve interest payment any more than the issuance of any other kind of currency. A person who has a bank deposit can withdraw it in currency and does not have to pay interest; a person who has no deposit and has to borrow must pay interest on his loan regardless of the kind of currency in which he withdraws the proceeds, or whether he leaves them on deposit and checks against them. The issuance of silver certificates in payment for silver purchases by the Treasury in no way diminishes interest payments on the public debt. If the Treasury paid for silver purchased out of its regular funds, it would have to increase the public debt by the amount of these payments, but the Treasury does not in fact pay for silver in that way, and no proposal has been made that it should do so. Consequently, the issuance of silver certificates has no bearing whatsoever on the interest burden of the Government. 5. In a period of tight money, when member banks were in debt to the Reserve banks, the issuance of silver certificates, just as of greenbacks, would ease the situation by giving banks reserve money with which to repay their borrowings at the Federal Reserve banks, But this result could be accomplished as effectively by open-market operations by the Reserve banks, which would not raise any problems of currency inflation. In any case this is not the problem today, when banks are out of debt and have a huge volume of excess reserves. 6. SILVER AND THE BALANCE OF INTERNATI ONAL PAYMENTS During the life of the silver program (1934-1938) this country has purchased about $900,000,000 of silver from foreigners. Some of these silver purchases may have resulted in additional purchases of American goods by such countries as China, Mexico, and Peru, "which have little gold. Some of the silver purchases, however, hsrcehad no effect on our exports and h a w only helped foreigners to acquire dollar exchange v/ith -which to pay for such American goods, securities, or bank balances as they would have acquired in any case. To this extent the silver purchased has taken the place of gold that would have come otherwise. 7. ILVEft ALMOST USELESS AS AH INTERNATIONAL RESERVE She chief purpose of metallic reserves todayis to settle international balances and maintain stability on the exchanges. Gold is admirably adapted to this purpose. The monetary authorities in most countries will accept it instantly in almost unlimited amounts at relatively stable prices when the balance of payments is running in their favor. A country with large gold reserves, therefore, can maintain the exchange value of its currency in the face of an adverse balance of payments so long as its gold reserves last. Silver, however, is of almost no use as an international reserve. Foreign governments and central banks do not want it. While it might be dumped on the commercial markets like other commodities, any attempt to sell a substantial amount overnight in order to meet a sudden adverse balance of payments would disrupt the market. Not only would the government suffer heavy losses on its silver .sales, but it would almost certainly be unable to •ealize the large amounts that are often necessary for the purpose of settling international balances. Silver cannot serve, therefore, the chief purpose of a metallic reserve today. 8. U.S. SILVER BUYING HAS WEAKENED OTHER SOURCES Qi DEMAND FOR SILVER The U.S. silver buying policy has weakened other sources of demand for silver. It ran the price of silver up from 45 cents in June 1934 to 81 cents in April 19555 boosting the exchange value of the Chinese yuan, deflating Chinese prices, and driving China from the silver standard. This largely eliminated the monetary demand for silver in China and helped convert China from an important consumer of silver to an important seller. Several other countries were forced to take emergency steps to protect their subsidiary silver coins when silver was jumping up in price in 1935, and it is doubtful if these will feel disposed to mint much additional silver coin — especially as several have found that coin made of cheaper base metals is equally satisfactory. Should the U. S. buying of foreign silver cease, therefore, the demand for silver is not likely to be as strong as before the policy went into effect. This fact reinforces the point made elsewhere that if the /^Nited States tried to sell a substantial amount of silver reserves to meet an adverse balance of payments it would disrupt the market. Present prices not only for domestically mined silver but for foreign silver are dependent on the U.S. Treasury purchases. Both^are artificial. The great shift in the nature of the silver market is shown in an accompanying table. ft*5 9. PRESENT LEGAL STATUS OF THE SILVER PROGRAM At the present time silver produced in the United States is being acquired by the Treasury under the so-called Thomas Amendment of May 12, 1953, as amended by the Gold Reserve Act of January 30, 1934. Technically, under the terms of the Thomas Amendment, the President is permitting free coinage of domestically produced silver. The power to do this expires June 30, 1939. This is not a matter of importance, however, because all that it will be necessary to do at that time in order to continue acquisition of domestic silver will be to resort to outright purchase under the powers conferred by the Silver Purchase Act of June 19, 1934. Such purchases could be made at any price up to $1.29 per ounce, and need not be made at the same price as that paid for foreign silver. Purchases of foreign silver are all being made at the present time under authority of the Silver Purchase Act of June 19, 1934, which has no date of expiration. 10. COMPONENTS OF SILVER MONETARY STOCK (Millions of dollars) Dec. 51 1955 Dec. 31 1958 525 417 507 1,640 Subsidiary coin (valued at $1.38 per oz.) 10 4 Bullion at cost 56 Silver coin in circulation outside Treasury (at legal valuation) Silver held in Treasury; Against silver certificates (valued at $1.29 per oz.) In General Fund: * This unused bullion costing $555,000,000 could be used as security for an issue of £1,290,000 of silver certificates. 555* 11. SILVER ACQUIRED BY U.S. TREASURYT 1954-58 (Figures in millions) Ounces Dollars Newly mined domestic (Proclamation of 12/21/35) Nationalized (Proc. of 8/9/34) Foreign (Silver Purchase 6/19/34) Act - Total 255 186 113 56 1,556 821 1,902 1,063 Note: The figure of $821,000,000 of silver acquired from foreigners under the Silver Purchase Act in the period June 19, 1954 - December 31,1958, is less than the figure of ^896,000,000 of silver imported in the years 1934-1938. Much of the "nationalized" silver had been acquired earlier in 1954 from foreigners by private interests in the United States in anticipation of Government action favorable to silver. Furthermore the Governments purchases of domestically mined silver at a special price forced domestic users of silver throughout the period to buy the foreign product. 12. NET SILVER IMPORTS TO UNITED STATES 1954 - 1958 Millions of dollars From United Kingdom 505 China and Hong Kong 111 Mexico 182 Other 99 Total 896 NET SILVER IMPORTS TO UNITED KINGDOM 1954 - 1958 From Millions of dollars^ United States - 478 India - China and Hong Kong 299 Japan 88 Other 89 Total 1/ 19 - 20 Official figures in pounds sterling converted into dollars at average rates of exchange for each year. H. PRICES or SILVER IK UMITED STATES Open market Newly mined U.S. silver (Cents per fine ounce) 1925-1929 60 Dec. 1952 (depression low) 25 Dec. 1933 (London Agreement) 44 June 1934 45 (Silver Purchase Act) April 26, 1935 (high) 81 Feb. 1936 45 Jan. 1958 45 (domestic price reduced) March 9, 1939 43 64.6 11 77.6 « 64.6 M 17CALENDAR OF LEGAL ACTION May 12, 1955 Thomas Amendment to Farm Relief Act - President authorized to permit free coinage of silver, to alter weight of silver dollar, and for six months to accept silver in payment for war debts at not more than 50 cents an ounce. July 22, 1955 London Silver Agreement (ratified by U.S. Dec. 21, 1955, and by last signer April 24, 1954) - Official sales of silver by India, Spain, and China limited; United States, Australia, Canada, Mexico, and Peru to sell no silver and to buy certain stated amounts; United States to buy most. Dec. 21, 1955 Executive Proclamation - Newly mined domestic silver to be accepted for coinage at net return of 64.64 cents an ounce. n. 50, 1954 Gold Reserve Act (amending Thomas Amendment) President authorised for two years, subject to extension for one year, to reduce weight of silver dollar (and subsidiary coins) in same percentage as reduction in that of gold dollar, and to allow a return on domestic silver accepted for coinage different from that allowed on foreign silver. 18. - 2 - June 19, 1954 Silver Purchase Act - Secretary of Treasuryauthorized and directed to buy silver at home and abroad until declared policy of raising silver stock to one-third of gold stock is reached or until price of silver reaches its monetary value (still Si.29 an ounce, but subject to increase by President), silver certificates to be issued in amounts at least equal to cost of silver so purchased. President authorized to commandeer silver at "fair value". Aug. 9, 1954 Executive Order - Silver commandeered (nationalized) at 50.01 cents an ounce. April 10 and 24, 1955 Presidential Proclamations - Amount returned for domestic silver raised from 64.64 cents an ounce to 71.11 and then to 77.57 cents. Jan. 25, 1957 Act of Congress - Power to permit free coinage of silver and to reduce weight of silver dollars extended to June 50, 1959. Dec. 50, 1957 Presidential Proclamation - Amount returned for domestic silver restored to 64.64 cents an o u n c e for period of one year. 19* - 3 - Jan. 1, 1958 London Silver Agreement - Expired. Dec. 51, 1953 Presidential Proclamation - Amount of 64.64 cents returned for domestic silver extended until June 50, 1959, when power of the President to permit free coinage of silver expires.
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