Posted 4th Aprile 2023

The Silver Standard: Silver was the World's First Reserve Currency

the silver standard first reserve currency

While silver is a wealth preservation, it also appears to be the world’s oldest form of money. 

Central banks historically owned silver as part of their reserves, while ancient civilizations used silver as money. An international silver standard emerged following the discovery of large silver deposits in Bolivia.  

history of silver standard

What is the silver standard?

The silver standard was a monetary system based on the use of silver coins produced by the Spanish Empire in the sixteenth century. The Spanish dollar, which contained 0.822 ounces (25.563 grams) of silver was used as the first international currency because of its uniformity as a minted coin. 

The Spanish dollar was called “pieces of eight” because one coin was worth eight reales (the real was the Spanish unit of currency). The Spanish dollar was widely used throughout Europe, the far east and the Americas as an international trading currency for close to four hundred years. In that sense, silver was the world’s first reserve currency.

England’s historical use of a silver standard continues to resonate in the name of its currency, the “pound sterling.” The pound sterling, which dates back to the early Middle Ages, was produced in Anglo-Saxon England by physically dividing a one-pound mass of silver into 240 portions. Silver continued to be the legal basis for the pound sterling until 1816. 

It appears as if the world transitioned from the silver standard to a gold standard between the mid-1700s and the late 1800s. 

The effect of Gresham’s law on the silver standard

As an aside, it can be argued that Gresham’s Law, named after the 16th-century financier, Sir Thomas Gresham, explains the world’s transition from a silver standard to a gold standard to a fiat currency standard. Gresham’s Law states that bad money drives good money out of circulation (i.e. rational actors use “bad” money and hoard “good” money). 

The English shilling, known as the “testoon,” was introduced in the 16th century. The shilling contained one-twentieth of one pound sterling. In 1663 a new gold coin called the “guinea” was introduced, which slowly transitioned England from the silver standard to a gold standard. In 1717 the value of the guinea was fixed at 21 shillings. This “fixing” overvalued the guinea relative to silver because a shilling was 1/20th of a pound sterling. 

In a textbook example of Gresham’s Law, British merchants used silver to pay for goods imported from other countries but demanded gold for the exported goods. This effectively replaced England’s silver standard with a gold standard. 

Germany, after defeating France in the Franco-Prussian war in 1871, extracted a 200,000,000 pound sterling indemnity, which France paid in gold. Germany used the payment to abandon the silver standard and joined Britain on a gold standard. 

In Colonial America, the Spanish dollars backed the paper money authorised by the thirteen British colonies, thereby establishing a silver standard in America before the American Revolution. Additionally, both the American dollar and the Spanish dollar became the basis for the Chinese yuan. 

when was silver dollar first established?

After the American Revolution, the United States adopted a silver standard based on the Spanish dollar in 1785. This silver standard was legally mandated by the 1782 Mint and Coinage Act, which established the silver United States dollar as the official unit of currency. The U.S. dollar was fixed at par with the Spanish dollar and was divided into 100 cents; the coinage act authorised the minting of coins denominated in cents and dollars. 

Ironically, the Mint and Coinage Act also ushered in the transition of the United States from a strict silver standard to a gold standard. The Bank of the United States charted for a term of 20 years in 1791, was authorized to hold both gold and silver as reserves to back the currency it issued, as well as setting a fixed ratio of gold to the silver U.S. dollar. Gold and silver coins and the Spanish dollar were authorised as official legal tender. 

In another textbook example of Gresham’s Law, because of the large amount of debt issued by the U.S. Federal Government to finance the Revolutionary War, silver coins were hoarded by the population, which prompted President Thomas Jefferson to suspend the minting of silver coins. 

What year did the silver standard end?

The Coinage Act of 1873 removed the United States from the silver standard and created a gold standard by ending the official minting of silver bullion into silver dollars but maintained and mandated the official minting of bullion into gold dollars. This transitioned the United States from a silver standard to a gold standard. 

The modern silver standard

While central banks hold gold as part of their Tier 1 reserves, it is my opinion that silver will eventually be incorporated back into the monetary and banking system. After all, silver embodies the same monetary properties as gold. Silver is valued at a fraction of the price of gold per ounce – the gold: silver ratio is currently at 84 vs the long-term historical average of 16 – giving silver greater fungibility and making it more practical for use as an everyday currency.

Eventually, the world is likely to reincorporate gold and silver as the reserve standard of money. That said, both gold and silver are therefore undervalued relative to fiat currencies and silver is undervalued relative to gold. 

Considering Gresham’s Law, rational economic behaviour mandates converting fiat currency savings into gold and silver. It is recommended to purchase and hold physical silver in the form of minted bullion coins and 1-000 ounce bars, as a practical way to store wealth. 

In addition, Kinesis also offers investors the opportunity to purchase silver through the investment platform, as the silver-backed asset, Kinesis silver (KAG). Combining blockchain technology with the value of physical silver, users can purchase and hold silver in their free account, as well as spend it via their card, effectively enabling them to use silver as money.


Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund.