If history lessons and its cause-effect nature are anything to go by, we can safely assume that a silver rally can actually gain wind, if not now, in the near future. The currency Revolution or the Utah Spring (whatever you may care to call), if goes viral, can spur another rally in precious metals.
Utah, the mid-west state in US, recently gave approval to use gold and silver as legal tender. Many other US states are expected to follow suit.
Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.
Now let’s go back in time…
India, under the British rule in 1835 had adopted a monometallic silver standard. But, Indian demand for silver was so strong that in 1850s, that demand literally outpaced supply and guess what, paved way for a private gold ingot currency to circulate in markets. When the clamour for introduction of a gold currency started off, government decreed that sovereigns and half sovereigns should be accepted at government treasuries at the rate of Rs.10 and Rs.5, respectively.
The government however resisted the popular urge to introduce gold currency and thought a regulated paper currency system would be the ideal solution.
Subsequently, the Paper Currency Act of 1861 was passed. This brought into the economy denominations of Rs.10, 20, 50, 100, 500, 1000 and 10,000.
The paper currency reserve held Rs.40 million in government securities and the rest in silver coins and bullion, with provision to include gold coin and bullion up to a limit of 25%.
But demonetisation of silver in Germany in 1873, the Scandinavian countries in 1874 and subsequently the Latin Union along with increased output from silver mining companies led to a global surplus in silver.
Naturally, this surplus found its way to India where silver was still in demand and coins were minted in silver. Needless to say, the silver inflow led to silver backed currency to plunge and made Indian rupee to measure the fathoms.
The phenomenon led to inflation in the nation and made a mess of the government budget.
The government was urged to stop free coinage of silver and to adopt gold standard. Indian mints were closed down. After studying the matter in-depth, currency and gold-silver coins were made exchangeable.
Obviously, Indian currency since then began to track international silver prices.
But eventually, subsequent to great depression in 1930, British Government dropped gold standard and rupee was linked to pound sterling.
What caused a decline in silver prices back then was silver surplus attributed to demonetising of silver and production surplus.
Now, if silver is again monetised, it can possibly lead to another spike in demand, and guess what; a rally. If the Utah trend goes viral and countries/states start assuming bullion standards, there would be further demand for silver; and a silver rally...
As published in: http://www.commodityonline.com/news/History-Mirror-Utah-Spring-and-the-possible-silver-rally-39408-3-1.html
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