Specie Payments Suspension And Gold Coin Circulation After 1861 In The Usa?

The shortest explanation I can give is that, in the USA (that is, Federally-controlled areas) during the Civil War and immediately after, there was a two-tiered currency system east of the Front Range of the Rocky Mountains. West of the Front Range (that is, Denver), paper currency hardly circulated at all : indeed, my grandmother, who passed away last year at the age of 101, clearly recalled gold being used in business dealings between her father and fellow California ranchers even after the Gold Reserve Act.

East of the Front Range, most everyday business was done in "greenbacks", that is, Government paper money. Before the outbreak of the Civil War, paper money was all bank issues, many thousands of them, and large, frequently-updated publications with names such as Bank Note Reporter existed to advise you whether you should take a note on an unfamiliar bank or not. It was common to encounter notes issued by banks which had gone out of business, or even completely bogus notes on banks that had never existed at all, and the difficulty of presenting the note of an out-of-town bank for redemption meant that many notes on solvent banks circulated at a discount, compared to specie, when away from their origin points. Across the Southern States, notes drawn on banks in the commercial center of New Orleans circulated at par, because of the good communication facilities of the Mississippi River, and the very strict banking laws of Louisiana, which assured the notes would be redeemed when presented. Because of the word "DIX" engraved prominently on the ten-dollar notes, Louisiana notes were known as "Dixies", and the areas where they predominated were known as "Dixieland".

The outbreak of the Civil War swept away all these private issues overnight. The Federal paper circulated at par with specie, or nearly so, even for quite a while after redemption was suspended, because it was uniformly accepted everywhere.

Now, what of gold (and silver)? Simply put, the balance of trade had to be settled in gold. That is to say, the excess of the value of imports over exports, which was never positive before 1878 (and was particularly negative during the Civil War because of the sudden disappearance of cotton and tobacco exports), had to be paid for in gold, because foreigners had no use for and would not accept paper dollars. It was precisely because of this constant outflow of specie, that gold and silver had always been in short supply, and constant recourse had been made to paper money beginning in the Colonial era.

Customs revenues were collected in gold, which served to retain a small proportion of the product of the mines in the country, but most went overseas. From the import duties, the interest on the Federal debt was paid in gold, but the people who received those payments mostly disposed of the gold for as much of greenbacks as they could get, to merchants who needed it to pay for export balances or import duties.

An interesting discussion.

I would think a key aspect of "keeping the gold in circulation in the west" during the 1800s was the sheer difficulty in physically transporting the gold elsewhere. You either took it overland across hazardous outlaw terrain, or put it on a boat in San Francisco and hoped the gold shipment made it back east (or to whatever foreign port you wanted it shipped to). That sea option meant either taking it around the Horn (a perilous voyage), or down to Panama and trekked overland through the jungle to another ship, or going all the other way around the world via Australia and Africa (which took a lot longer, especially in the age of sail).

Another aspect to consider is the relative price of gold and silver.

Most countries in the 1800s attempted to create some kind of bimetallic-based monetary system, where both gold and silver coins circulated alongside each other and were exchangeable for their denoted face value and both the gold and silver coins were expected to more or less contain their stated value in precious metal. This of course creates an "official exchange rate" between gold and silver - which is all well and good, except out in the real world the relative value of gold and silver fluctuated with how much each of those metals was being mined. This real-world ratio also meant that different countries and regions had different ratios - and international merchants could exploit this for extra profits.

For example: most European countries (notably France) had a silver:gold ratio of 15.5 : 1. In the early days of US coinage, the exchange rate was a solid 15:1. This meant that gold was "cheaper to buy" in the US, so if merchants could arrange to get their payments in gold rather than silver, they could take that American gold and sell it in Europe for more than face value. This encouraged the draining of gold out of those parts of the US economy that were heavily connected to Europe - i.e. the east coast and Mississippi watershed.

It was the stemming of this outflow of gold that was a primary motivation for the Coinage Act of 1834, which saw US coinage reformed in such a way as to revalue the silver:gold ratio to become 16:1. This of course would leave the US in a position where it was now the silver, rather than the gold, that was getting drained to Europe, and European gold was flooding in at the same time as the California gold rush was getting underway - thus causing a surplus of gold, and a shortage of silver. Finally in 1873, as new silver mines created an oversurplus of silver and other international markets (notably Germany) abandoned silver in favour of gold, a new Coinage Act saw that silver was officially decoupled from gold entirely as the US formally moved onto a monometallic gold standard. Gresham's law thus ensured that, in terms of local transactions, gold was hoarded and silver was spent.