In 1873 Congress authorized the coinage of the trade dollar, a special silver dollar coin intended to facilitate trade between the United States and China, and to furnish a market demand for rising silver production in the Western states. At first the coin was legal tender only for up to $5, but Congress later withheld its legal-tender status. The Treasury stopped minting the trade dollar in 1877 and Congress officially discontinued the coin in 1887.
Trade between the United States and the Far East, particularly China and Japan, accelerated around 1869 through 1870, and a popular medium of exchange in the Pacific Basin was the Mexican silver dollar containing 416 grains of silver. The American silver dollar, containing 412 1/2 grains of silver (before discontinuance on 1873), was not competitive with the Mexican dollar. The state of California petitioned Congress to coin a silver dollar containing 420 grains of silver, hoping to draw to California the Chinese and Japanese trade then flowing to Mexico.
The Act of 1873, known in American folklore as the Crime of ’73, discontinued the silver dollar as a standard of value in American coinage, but created the trade dollar strictly for commercial purposes with other nations. The act defined the value of the standard dollar strictly in terms of a fixed weight of gold, and silver coinage, excepting the trade dollar, remained only as a subsidiary coinage with a face value exceeding the market value of its bullion content. Apparently, Congress by accident gave the trade dollar a legal-tender status on par with the other subsidiary coinage, making it legal tender for debts up to $5. On 17 July 1876 Congress passed a joint resolution declaring that the trade dollar was not legal tender. The Treasury minted nearly $36 billion of these coins, and all but about $6 million of these coins were exported.
The trade dollar was ill starred from the outset. The traditional United States silver dollar remained in circulation, although new silver dollars were no longer minted. The old silver dollars, containing 7 1/2 grains less silver than the trade dollar, were legal tender, acceptable in payments of public debts, and the government was committed to maintaining their parity with the gold dollar. The trade dollar had more intrinsic value, but enjoyed none of these characteristics, giving rise to no small amount of confusion. Declining silver bullion prices put a tighter seal on the fate of the trade dollar, which commanded no official value and was worth only the market value of its silver content.
To put an end to an awkward situation, Congress on 19 February 1887 discontinued the coin and authorized the Treasury to accept trade dollars in exchange for standard dollars or subsidiary coinage for a period of six months. Congress further provided that the Treasury melt down the trade dollars received in exchange and recoin the silver content as subsidiary coinage. Over $7 million of trade dollars flowed into the Treasury for exchange. As a legacy of the trade dollar, many Pacific nations, including Australia and New Zealand adopted the name dollar for their domestic currency.
See also:Bimetallism,Crime of ’73,Free Silver Movement
Myers, Margaret G. 1970. A Financial History of the United States.
Nugent, T. K. Walter. 1968. Money and American Society.
Weatherford, Jack. 1997. The History of Money.