Gold Coin Circulation in 1917

Although not withdrawn until 1933, the Treasury Department discouraged use of gold coin as early as 1917. A December 2, 1917 press release recently added to Newman Portal outlined the talking points. Secretary W. G. McAdoo noted that circulation of gold coin caused abrasion and loss of value, and that most people preferred to use paper money (in this case gold certificates) anyway. McAdoo felt that gold should be reserved for backing the certificates, or foreign exchange settlements, and only then when necessary. The Secretary castigated the use of machines for counting gold coins and considered it to demand gold coins in commerce. One can only observe that the eventual removal of gold coin from circulation, in 1933, was politically facilitated by first changing it into paper.

Thanks to Roger Burdette for pointing out the collection of Treasury Department press releases available at FRASER, the online Federal Reserve Library.

Image: Executive Order 6102, demanding surrender of gold coin, bullion, and certificates.

Link to Statement by Secretary McAdoo on Use of Gold Coin as Circulating Medium:
https://nnp.wustl.edu/library/publisherdetail/543206

Link to Treasury Department press releases on FRASER:
https://fraser.stlouisfed.org/title/6111

Roger adds:

"During the war, Treasury prohibited gold exports, discouraged gold coin circulation and encouraged banks to remove good gold coins from circulation and return them to the Federal Reserve Banks. As banks followed treasury instructions, the quantity of gold coin gradually diminished along the Pacific coast. The mint and assay offices would only accept worn gold at its weight, not face value. Thus, someplace along the chain of commercial ownership, someone got less than nominal value for their coins.

"Before the war, U.S. mints had engaged in gratuitous re-coinage. Lightweight coins were separated from standard pieces, and melted, then struck into new coins of full weight. The Mint Bureau reported the difference between actual gold content and face value as a loss, and it was treated as a necessary obligation required to maintain integrity of the coinage. As noted above, exchange rates between San Francisco and New York tended to pull new gold coins out of circulation for shipment east, leaving only the worn coins for local use.

"With Pacific coast gold coins not being replaced, their actual metallic value declined due to abrasion. The treasury decided in February 1917 to redeem any gold coins presented by banks and individuals at face value for the limited period of ninety days. (Unofficially, the redemption period was nearly a year.) The government would absorb the loss and pay for the redemption in Federal Reserve Notes. Opponents felt the cost would be too high, while proponents argued it gave owners of worn coin fair value, and also helped the country by adding gold to the national reserves.

"Assistant United States Treasurer in San Francisco, William J. McGee, was quoted as stating the plan would cost about $100,000. [source of $100k estimate -- New York Times, February 12, 1917. p.14.]