History Gold in USA -Basically Silver: 1792-1834 : 1834-1862

History Gold in USA -Basically Silver: 1792-1834 : 1834-1862
Officially, the United States began not with a gold standard, but with a bimetallic standard in which both gold and silver were used to define the monetary unit. The first coinage act,

based on the recommendations of Treasury Secretary Alexander Hamilton, defined the dollar as 371.25 grains of pure silver minted with alloy into a coin of 416 grains.

Gold coins were also authorized in denominations of $10 (“eagle”) and $2.50 (“quarter-eagle”). The ratio of silver to gold in a given denomination was 15 to 1.

These coins were declared legal tender. But in addition, a number of foreign gold coins were also declared legal tender. Most significantly at the time, the Spanish milled dollar of silver was designated as legal tender and set equal to the U.S. dollar.

A country’s monetary system operates in the context of a world market for metals. And the world market price ratio of silver to gold fluctuates. Not long after the first coinage act was passed, the market price ratio of silver to gold moved to around 15½ to 1. As a result, silver being the cheaper

metal, gold was used for purchases abroad, and the coins used for domestic purposes became primarily silver. Effectively, the United States found itself on a silver standard for the first 40 years of its existence. Basically Gold: 1834-1862

In 1834, Congress moved to remedy the problem caused by the 15-to-1 silver-to-gold mint ratio, and therefore restore gold coins to use in domestic commerce.

The ratio was changed to 16 to 1 by reducing the gold in gold coins. The pure gold in an eagle was reduced from 247.5 to 232 grains (and the coin itself reduced to 258 grains, almost nine tenths fine).

An additional adjustment was made in 1837 to 232.2 grains of gold to make the fineness exactly nine-tenths. The fineness of silver coins was also changed to nine-tenths. Since the latter was accomplished by reducing the alloy content, the amount of silver in a dollar remained the same (371.25 grains in the newer 412.5 grain dollar coin).

The new coins were legal tender for debts incurred before the alteration in the gold content. This meant that debts from before the change could be discharged with effectively less money than was borrowed. Before 1834, a $10 debt could be paid of with 3712.5 grains of pure silver,worth about 236.465 grains of gold on the world market.Afterwards, 232 grains of gold could pay the debt, a reduction of about 2% in the debtor’s cost. The change in the mint ratio, however, was too great. The new mint ratio made gold cheaper relative to the world market price ratio. Silver began to be exported, and after a few years, gold became the principal coin of domestic commerce. The latter phenomenon became more pronounced with discoveries of gold in California and Australia. By 1850, silver coins had almost totallydisappeared. This created a problem because there were no gold coins representing fractions of a dollar.The shortage of fractional coins was

remedied by an act of 1853.

This act authorized subsidiary silver coins (i.e., less than $1) with less silver than called for by the official mint ratio, and less than indicated by the world market price.

They were made legal tender for amounts less than $5

  the source:Brief History of the Gold Standard in the United States