In 1918 the adverse balance of trade between the United States and India, in the face of the necessity of conserving and fortifying our gold reserves during the war, led to the passage of the Pittman Act, which authorized the Treasury to reduce silver dollars, in number not to exceed $350,000,000, to bullion and to sell it at a minimum price of $1 per fine ounce. At the same time the Secretary was authorized to enter into contracts with producers of silver, to buy silver at the price of $1 per fine ounce for the purpose of restoring the bullion taken from the Treasury and sold to exporters to India.
The object of the sales and purchases arrangement was temporarily to provide silver in large quantities for immediate use. The hoard of silver in the Treasury was thus seized upon to settle the adverse trade balance and conserve the gold supply against shipment to the East. As most of the silver dollars were being circulated by silver certificates, the reduction of silver dollars to bullion forced the recall of an equivalent amount of certificates. To provide against the reduction of the currency in this manner, the federal reserve banks were enabled to issue federal reserve bank notes secured by treasury certificates of indebtedness and one-year treasury notes. These federal reserve bank notes will be retired later, according to the plan, by the issue of silver certificates as silver is repurchased by the Treasury.
The Secretary of the Treasury in executing the Pittman Act decided that, in order to provide for the various items of expense involved in the operations of withdrawing silver dollars and recoining new bullion, it was necessary to fix the price of silver sold by the Treasury at $1.015 per fine ounce. Silver exportations were subjected to licenses, and any silver for which more than $1.015 had been paid by the applicant was denied export license. These restrictions on silver exports were removed in May, 1919. In the interim 271,000,000 silver dollars were melted and sold at $1,015 Per ounce, although the market price of silver ranged much higher. In the spring of 1920 the market price of silver fell below $1 per ounce, and on May 17 the Secretary of the Treasury gave standing orders to the Director of the Mint, under the mandatory provisions of the Pittman Act, to purchase, at $1 per ounce, silver - the production of mines and reduction plants located in the United States - up to an aggregate amount of 207,000,000 ounces. This will establish a minimum price of $1 per ounce for American silver for some time to come, but the price of foreign silver may fall below that figure. In February, 1921, was resumed the coinage of silver dollars, of which none had been minted since 1905.