Trade Dollar (United States Coin) - Background

Background

Following the California gold rush that began in 1849 and the Australian gold rush that began in 1851, a larger amount of gold was put into commerce than could be easily absorbed by the normal channels. This resulted in a decrease in the value of gold and an increase in the relative value of silver. As a result, silver coins rapidly disappeared from circulation due either to hoarding or melting. In response, Congress authorized the Mint to reduce the quantity of silver in all denominations except the three-cent piece and silver dollar. Beginning in the 1860s, silver production rose and the price decreased. During this time, silver coins largely disappeared from circulation and were replaced by paper and copper currency.

In China, the Mexican peso (successor to the Spanish dollar) was greatly valued in commerce. However, the Chinese were sensitive to any changes in the coin's design, and were reluctant to accept newer coins due to a minor design change. The American silver dollar, 7.5 grains (0.49 g) lighter than its Spanish counterpart, was unpopular in the Orient due to its light weight, forcing American merchants to purchase the Spanish or Mexican pieces to use in trade. Beginning in 1866, during the reign of Emperor Maximilian, the design was changed to show the Emperor's portrait; this caused widespread nonacceptance of the coins in China.

While conducting an investigation of the Mint at San Francisco, deputy comptroller of the currency John Jay Knox began discussing the monetary situation with Louis A. Garnett, a man who had worked as both the treasurer and assayer of the San Francisco Mint. Garnett recommended that the United States mint a commercial dollar that would be exported to the Orient to compete with other large silver coins that were already popular in that region. Garnett's rationale was that the coins would be hoarded or melted in Asia and would never be presented for redemption, allowing the government to make a profit from the seigniorage. During his time in San Francisco, Knox also discussed the proposed commercial dollar with Henry Linderman, who was working as a special agent for the Treasury Department at that time. In 1870, Knox wrote a report to the Treasury and wrote the draft for a bill on coinage. Knox's bill was approved by George Boutwell, Secretary of the Treasury. After modification and review from current and former government officials, the bill was put before Congress.

On November 19, 1872, while the coinage bill was still before Congress, Linderman made a report to the Secretary of the Treasury. In the report, Linderman argued that the coin need not hold legal tender status, and that it could simply be a piece of silver imprinted with its weight and fineness. Linderman also notes that such a product could supersede the Mexican dollar and eventually command a six to eight percent premium; at that time, American silver exported to the Orient was being sold at a two percent discount. Linderman proposed that the coin be named the "silver union" in order to distinguish it from the standard coins then in production.

In February 1872, the bill was amended by a House of Representatives committee to include authorization for a commercial dollar weighing 420 grains (27 g); this was struck three months later when the House voted to include provisions for the production of a standard silver dollar weighing 384 grains (24.9 g). While in the Senate, a provision was added to the bill requiring the Treasury to coin a trade dollar of 420 grains (27 g), as had been done earlier in the House. The revised bill, which came to be known as the Coinage Act of 1873, was approved in the House and Senate and was signed by President Ulysses S. Grant on February 12, 1873. The bill provided, in part, for the striking of trade dollars which held legal tender status up to five dollars. The legal tender provision was added by a last-minute rider at the behest of silver interests. At the insistence of Ohio Senator John Sherman, the weight and fineness of the piece was indicated on the reverse, an attribution which numismatic historian Don Taxay found incomprehensible as "Chinese merchants would never understand them".

Prior to the passage of the Coinage Act, the director of the Philadelphia Mint oversaw all branch mints. After the Act, the office of director was transferred to Washington, D.C., and responsibility for each mint was handed over to a superintendent.