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
References:
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.
