Topic: Why did removing the silver content of coins not affect their fungibility? (Read 1737 times)

Why not melt all those silver coins? Who is going to know once they are in the form of a bar?

Just start a Mexican melting operation.

Silver value is not added to the fiat value, but it can replace it. (As long as it's not illegal to smelt them, which is often the case).

Of course you can always illegally smelt them.

Anyway when the silver content is less than the value of the coin it would not make sense to smelt them as you would lose value. Therefore in such a case would the value be the same.

In case the silver content is more than the coin itself than officially the coins are worth the same but in practice one could melt the silver coin and sell the silver for more money. (And repeat if he could buy more silver coins for sell than their true value).

This answer has clearly been resolved. It had a huge effect and the ramifications of turning money into fiat is still being felt today. We will continue to feel the effects in the future. Fiat allows the government to create massive debt levels and sell the future of our children for immediate gratification. It is this unfettered power to create money that makes fiat so dangerous.

Correct. Almost all silver coins issued in the 20th century as general circulation coins had a higher nominal value than the value of the contained metal when they were issued. It's inflation by so called "quantitative easing" (a modern euphemism) that made these coins commodity money. You can find multiple modern examples for copper/bronze and nickel coins disappearing from circulation because of the same reasons. Pick a coin catalogue that lists weight and metal compositions of recent circulation coins and compare nominal value to the current trade value of the metals contained, then you'll know which coins will likely become commodity money in the near future and adjust the coin composition of your cash reserve accordingly...

With each new coin issue the material value is reduced and/or the nominal value is increased. That's a much more solid indicator of inflation/currency devaluation than any official statistic on the matter.

I would say the coins were fiat money when they were introduced (metal content less than nominal value), and the money supply expansion reduced the value of the money unit, until it were smaller than the commodity value of the silver coins, making them commodity money. It happened in Italy with copper coins. The coins disappeared, and you got diverse candy as change in the shops.

Officially all coins regardless of their composition remained fully fungible simply because the law stated that they had to be accepted. It is an entirely different question which kind of coins people preferred to accept in order to hold (hoard) them. But this preference had no real influence on fungibility because law forced people to accept non-silver coins as legal payment.

There are no value to 1s and 0s.  I've got billions in my computer, as have millions of others.  Value is in a particular arrangement of the bits, and in Bitcoin, the protocol that interprets the bits.  The keys and coins on their own are pretty worthless.

changing the silver content turned the coins into fiat

OP answered his own question, as soon as the coin composition changed, they no longer became fungible.

You are saying a law is the determination of whether something is worth doing or not.   The USA rules the USA, I take the coins and I leave the country and I do whatever I feel like and Ive broken no reasonable law.  Even if I stay inside the USA, its a giant country and really to say a law is the reason anything is true or not is just not going to fly sorry

The whole argument is wrong, theres even a law written (a proper one not for politics) for the dynamic behind poor currency.   Bad money drives out good and googling that shows the wiki as - http://en.wikipedia.org/wiki/Gresham's_law
Ever watch the time machine by HG wells where he goes into the future and finds society fighting each other with clubs like cavemen, idiots who'd forgotten all they knew.  Thats us, this 'law' is 500 years old but common knowledge has turned alot of what society learned back into myths

http://www.youtube.com/watch?v=q0Xu-0moeew

The misconception is practically text book now, why does dollar value not matter; it does but as above you are not alone.   The price of a gallon of petrol in the sixties was about 2 dimes.  The price today people say is much more, no in fifty years the price changed very little surprisingly.    2 or 3 dimes buy that gallon if you use the original silver dimes.
  We live in the future written by Orwell where commonly broadcast truths are the opposite of reality but to even mention how ridiculous government has become, makes you incorrect and unpatriotic even for mentioning it.  Same thing went on in USSR and few other places no doubt

Legal tender & melt laws. You can't legally melt down US coins and they must be accepted at face value (rather, they must not be accepted for less than face value, but you can pay more than FV if you really want). Since you can't legally melt and/or isolate the silver in a 1964 dime to create silver bars, there's no point factoring in melt value, maybe unless you believe the USG is on the brink of complete collapse where the laws become void. You must accept US dollars for any debts, which includes many (but not all) merchant purchases.

A $1-denominated silver coin deemed legal tender which contains $5 worth of silver is not worth $5 because the government demands it not be and will use force if you disagree. On the flip side, you cannot denominate coins with any USD face value unless you're authorized by the government, but there are ways to get around that, at least. For example, a Microsoft Point is currently the effective equivalent of $.0125. 5000 MS Points = $62.50 at current rates. Their particular transaction scheme lets them get around legal tender law and effectively have their own "inherently worthless" currency they mandate as being valuable (which they justify by offering goods and services for sale, payable with MS Points), similar to BTC except for the mandate. Theoretically, MS could devalue their currency if they wanted by simply offering less MS Points for more USD and making games/services cost more MS Points, which'd effectively be inflation. Actually, I think they deflate their currency, because from the quick Google search I did to find the market rate, it looks like it was $5/5000MSP a few years ago, so they're actually creating an incentive to buy and hoard MS Points even though you can never (by the EULA) cash them out for USD like you can with BTC or PMs.

And how is this better than fiat?   According to your logic,  isnt it more dumb to buy a "digital coin" for $600

Sure they were.  Prices have been steadily rising ever since.  If we had stayed on sound money, prices would have been steadily dropping.  It looks like a gallon of gas would be about $0.25 today, if we were still using honest money: http://www.coinflation.com

It did affect market practices, just not in the way you are thinking.  Shortly after 1964, people were willing to pay more for a quarter minted in 1964 than one minted in 1965.

Prices weren't affected in stores because stores aren't in the business of accepting silver or gold in exchanges for goods.

It depends on how those 1's and 0's are treated.

"I'm sure the government saw that silver was quickly going to be worth more than the coin itself, hence the reason they ditched the silver minting."

"I'm sure the bankers saw an opportunity to inflict an age-old ponzi scheme
that would, in medieval times, have resulted in the removal of their right
hand and testicle below, hence the reason they ditched the silver minting"

Fixed it for you.

Shamless plug - search for "Learning from Imperial Rome"

Whats the value of 1s and 0s ?

The face value is more commonly understood to be the real value than the commodity price set by weight and material. Basically, people are dumb. If the US Treasury petrified turds of crap in such a way that they had "$100" printed on them, maybe people might start to catch on. Maybe. Meanwhile, plastic bills have been introduced in some countries. Really.

Fungibility is the ability to exchange one coin for another. If you have a 2014 coin, there are a few people that will not exchange it for a pre-1965 coin of the same denomination. That means that its fungibility has been affected. Most people won't care, so the effect is small, especially now that virtually all of the silver coins have already been taken out of circulation.

You would be a fool to use a 1964 half dollar to pay for a loaf of bread. Some people would do it because they don't know about the value of the coin beyond its nominal value.

But the decrease in value didn't translate to market practices. i.e. it wasn't the case that a loaf of bread might cost $1.00 if paid by cupronickel coins but less (e.g. $0.90) if paid by silver coins which should have been the case if the two values had actually diverged.