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Form P. R. 511

TO

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FROM
REMARKS:
Attached is a memorandum,
prepared at ay request under Burke
Knappfs direction,that you may be
interested in having,to bring you
up to date on the silver picture•

CHAIRMAN'S OFFICE



©

B O A R D OF G O V E R N O R S
• F THE

FEDERAL RESERVE SYSTEM

Office Correspondence
Q

Chairman Eccles

From

Date

Mary Maroney




Subject:

September 9, 1945
Silver

The attached memorandum is in response to your request
for information on recent developments in silver.

SILVER DEVELOPMENTS IN UNITED STATES 1941-1943

The war has effected a complete reversal in the supply position
of silver*

The industrial demand for it as a substitute for the scarcer

metals, aluminum, copper, nickel, and tin, has overshadowed its monetaryaspect and the huge stocks accumulated by the Treasury under the Silver
Purchase Act and the domestic silver subsidy program are now found to have
some useful purposes*
Shortly after the outbreak of war in Europe the Governments of
Great Britain and India imposed controls on the movement of silver, particularly imports*

The United States market was thus insulated from these

customarily active centers of speculation and hoarding and was affected
only by increasing industrial demand*

Consumption in both civilian and war

industry rose but it was not until the end of 1941 that the market showed
any tendency to take stock of a growing shortage of supplies.

On November

19, 1941, the United States Treasury as part of an over-all program of
mutual cooperation between the Governments of the United States and Mexico
concluded an agreement to purchase directly six million ounces of silver a
month from Mexico*

(No change was made in the Treasury's buying price for

foreign silver which had remained at 35 cents since July 10, 1939#) This
action, intended only as a gesture of goodwill, suggested to the market
that the industrial supply was to be deprived of six million ounces a month
which otherwise would have gone into consumptive channels*

This supply, it

should be noted, was constituted wholly of foreign silver which was available
to consumers at 35 cents an ounce as compared with the price of 71*11 cents
which the Treasury pays under the terms of the silver subsidy legislation for




domestic silver.
To retain control of Mexican silver against the Treasury^ offer,
the market price was raised to 35-3/8 cents and Mexican silver continued to
go into consumptive channels.

In the spring of 1942, however, the increas-

ing demand was instrumental, in persuading some consumers to go to Mexico to
buy in order to escape the informal rationing of supplies which was being
enforced by bullion dealers here.

This action in turn was followed by the

licensing of imports for essential purposes by the War Production Board and
the application of price controls by the Office of Price Administration.
In August 1942, the Office of Price Administration lifted the ceiling price
for foreign silver to 45 cents.

This temporarily eased the situation by

bringing into the market silver which had been withheld in anticipation of
higher prices.
Meanwhile the Tar Production Board had begun to restrict the use
of foreign silver to priority needs. The Treasury also had taken cognizance
of the growing scarcity by leasing to the Defense Plant Corporation its wfreew,
i.e., unmonetized silver bullion for nonconsumptive purposes and by agreeing
to the postponement of deliveries on its current purchases of domestically
mined silver.

The! release of Treasury silver for industrial uses has been

carried still further in 1943 by the enactment of the Green Act which permits
the sale of the Treasury1 s free silver at 7U11 cents an ounce for certain
consumptive purposes approved by the War Production Board and the use for
nonconsumptive purposes of the monetized bullion, i.e., the metallic cover
for silver certificates.
The Treasury stocks made available by the Green Act appear to be
far in excess of the probable consumption notwithstanding the fact that the
latter has risen rapidly in the last year and a half#



Consumption in 1942,

including coinage requirements, is estimated at 194 million ounces as compared with 135 million ounces in 1941* ufaile estimates prepared by the War
Production Board in April of this year place the maximum consumption in
1943 at 270 million ounces*

On July 12, 1943, when the Green Bill was

enacted, the Treasuiy stocks included 1,525 million ounces held as security
for silver certificates and 1,252 million ounces of «freett silver in the
General Fund*

Of the latter amount 700 million ounces had already been

transferred to the Defense Plant Corporation in accordance with the agreement of May 6, 1942, but if the need arose this amount could now be charged
against the monetized bullion thereby releasing for sale an equivalent amount
of wfreew silver.
Within recent months the factor of increasing foreign demand has
become more prominent.

On July 2, 1943 the arrival in the United Kingdom of

3 million ounces of silver from the United States was announced*

The silver

came from the Treasury1 s wfreew stock under a Lend-lease arrangement*
Although no other transactions of the nature have been disclosed it is
assumed that future withdrawals are quite likely* in view of Secretary
Morgenthau's statement of last December that Treasury Mfreew silver would be
loaned to friendly foreigi powers provided that such nations agree to return
it ounce for ounce after the war*

On August 17, 1943, the Finance Minister

of Mexico, Senor Eduardo Suarez announced that increased coinage and industrial demands in Mexico necessitated the suspension of shipments to this
country until April 1944#

According to press reports, part of the increased

industrial demand in Mexico stems from a shortage of silverware here*

Our

manufacturers who are working on non-war orders are not allowed access to




foreign supplies or to the Treasury "free11 silver; they are permitted to
use newly mined domestic silver only to the extent of fifty per cent of
their normal consumption in 1941 or 1942, -whichever is larger#

As a result

of this situation some of our large retailers, unable to meet expanded
consumption with the amount of non-priority articles permitted to be produced, have been placing orders for hollow ware and costume jewelry in Mexico.
Confirmation of this development is to be found in reports from manufacturers
here that they have received offers from Mexican producers to purchase idle
machinery and equipment.

The Mexican Government has recently imposed a tax

of 8*41 pesos per kilogram (approximately $1.75) on the export of silverware
and jewelry. Formerly these items had enjoyed free export.

The increased

coinage is attributed to hoarding by the public as well as the melting down
of coin by speculators who have been realizing more from the silver content
than from the nominal value of the coin*
At the time of the passage of the Green Bill, Representative Celler
served notice that upon the reconvening of Congress he expected to press for
the repeal of the Silver Purchase Act.
House calendar*

He has a bill to that effect on the

In the present situation it does not appear that there is

much ground for criticizing the policy since it has had some fortuitous
results#

It is to be noted, however, that the difficult price relationships

of foreign and domestic silver have not been particularly changed —

foreign

silver being acquired at 45 cents and domestic silver at 71*11 cents an ounce.
Since all the Treasury1 s stock which is being sold for industrial consumption
is being turned over at the latter level, industry, in large measure, is
adapting itself to the price which, in pre-war years was definitely uneconomic.




- 5 Meanwhile there is a very good prospect that a considerable portion of our
"surplus" silver will be used up*




A calendar of events and pertinent tables are attached*

-1 Calendar of Silver Developments in United States under War Conditions

Foreign Silver
November 28, 1941

Market price increased 3/8 cent to 35~3/8 cents
to divert Mexican production from U* S. Treasury,
which on November 19, 1941, agreed to purchase
6 million ounces monthly at 35 cents an ounce*

May 6, 1942

Bullion dealers ration sales for all purposes
other than war and essential manufactures, as
demand exceeds imports*

Domestic Silver

U* S* bans silver exports to Europe* Unannounced embargo on shipments to Spain,
Portugal, Switzerland, Sweden, Vichy-France,
Turkey, and French Africa, in order to keep
metal from Axis industry*
Treasury leases **free silver" stocks to
Defense Plant Corporation, placing at its
disposal 1*4 billion ounces for nonconsumptive war uses*

May 6, 1942

May 11 & 18, 1942

0* P* A* freezes market price at 35-3/8 cents*
Ceiling applied to transactions in bullion and
semi-fabricated products beginning May 11; to
articles sold at retail beginning May 18*

July 21, 1942

W* P* B* makes imports subject to license to
prevent purchases in Mexico by private manufacturers at prices in excess of U* S* ceiling
of 35-3/8 cents.

July 29, 1942

Effective October 1, W* P* B* prohibits use of
silver in all manufactures not bearing a
priority rating of A-3 or higher, in order to
conserve stocks*

August 4, 1942




Treasury permits postponement of deliveries
of newly mined silver for which it holds
contractsf in order to divert supplies to
market for non-priority manufactures#

Foreign Silver
August 5, 1942

Domestic Silver

0+ P « A . applies ceiling of 35^3/8 cents to all
imports to discourage speculative withholding by
foreigners in anticipation of higier prices.

August 28, 1942

0. P. A. fixes price for newly mined domestic
silver at 71.11 cents plus transportation
charges. The inclusion of the latter gives
market buying price advantage over Treasury
buying price.

August 29, 1942

0. P. A. permits sellers of semi-fabricated
products to increase price 36-1/3 cents to
71.11 cents, the rely passing along to
customers the increased cost of the use of
newly mined domestic in place of foreign
silver.

August 31, 1942

0. P. A. lifts price 9-5/8 cents to 45 cents
after Governments of the United States and
Mexico agree on such price for imports into
this country.

September 15, 1942

Growing tightness in supplies increased by
two factors: (1) intimation by W. P. B. that
war needs might necessitate conservation
controls; (2) intimation by Senator McCarran
that he planned to introduce legislation that
would increase price from $.71*11 to $1*29 an
ounce* Rationing of supply by dealers.

September 17, 1942

Sale of silver from Treasury stock. 5 million
ounces of silver "ordinary", i.e., silver
which was not acquired under monetary
legislation, offered for sale at 45 cents
for use in war production.




Domestic Silver

Foreign Silver
November-December
1942

Metals Reserve Corporation stockpiles silver to
take t p strong reversal in supplies brought out
i
by 45 cent price.

December 14, 1942

Secretary of Treasury announces that the U* S*
will lend-lease silver to friendly foreign
powers for return after the war on an ouncefor-ounce basis.

February 23, 1943

W* P* B« outs non-essential manufactures by
50 per cent in an order limiting the amount
of domestic silver available for such products to one-half the amount consumed in
1941 or 1942, whichever is larger*

March 23, 1943

0. P. A.
71*11 in
factured
includes

July 2, 1943

Treasury lend-leases silver to United KingdomAnnouncement of arrival in United Kingdom of
3 million ounces from Treasury's stock of
Hfree1* silver, to b e returned ounce for ounce
at end of war*

July 12, 1943

Enactment of Green Bill, making available to
consumers approved by the War Production
Board the "free" silver stocks of the
Treasury at 71*11 cents an ounce and
liberating for non-consumptive uses the
stock of monetary silver, i*e*, the metallic
cover of silver certificates*




permits increase of 36 cents to
price of finished articles manufrom newly mined silver* Order
12 specified lines of silverware *

•I ^

M

Foreign Silver
July 29, 1943

W* P* B* restricts use of foreigi silver to
manufacture of items bearing preference
rating of AA-5 or higher as result of
greatly curtailed imports.

August 9, 1943

¥* P. B* restricts the use of Treasury
silver made available by Green Act to
the manufacture of engine bearings,
official military insignia, brazing
alloys, and solders*
0* P. A. permits increase of 36-1/& cents
to 71+11 cents in prices of silver scrap
derived from use of newly mined domestic
silver*

August 13, 1943

W* P. B. requires inventoiy reports of foreign
silver from manufacturers whose stocks of
metal have been rendered idle by W. P. B.
orders restricting usej silver to be moved
into essential permitted use.

August 17, 1943

Announcement that shipments from Mexico will
be suspended until April 1944 in order to meet
increased coinage and industrial demands in
Mexico.

September 6, 1943

W. P. B. prohibits use of foreign silver in
manufacture of brazing alloys or soldersT




Domestic Silver

I. War Production Board Estimates of April 28, 1943
(Millions of ounces)
Supply:
Domestic Production
Imports
Total
Estimated receipts from scrap, Metals Reserve
Company stocks, and reserves of "silver ordinary"
Total

45
70

m
47
152

Consumption:
Essential
Non-essential
Total
Potential additional consumption:
Essential
Foreign industrial and coinage requirements
Total

II.

139
30
159
40-50
40-50
249-269

Domestic Production
(Millions of ounces)

Period

1942

1943

January-June

30

21

July-December

25

Total




55

United States Silver Imports

Ill

(Millions of ounces)

Imported from:
Period

Canada Mexico
1942 - January - June
Dece®ber
July

All
Other

Total

7
7

58
32

8
3

4
3

3
3

60
48

14

Total

70

11

7

6

108

5

SO

6

9

2

42

1948 - January - June

IT*

Peru

Other
Latin
.America

Components of United States Silver Stock
(Millions of ounces and dollars)
December 31, 1941
Ounces
Dollars

Silver coin in circulation
outside Treasury
Silver held in Treasury:
Against silver certificates
In General Fund:
Subsidiary coin
Bullion at cost

*
**

July 31. 1943
Ounces
Dollars

403

557

524

720

1,516

1,960

1,520

1,966

3
1,353

4
*662

26
**1,250

36
*590

At cost va lue
700 million ounces of this amount held by Defense Plant Corporation*




Silver Acquired by Mints and Assay Offices

V*

(Millions of ounces)
Period
1942 - January - June
July

- December

Total
1943 - January - June




Newly mined domestic
28

Foreign
14

20
48
5

14
—