The Mint Act of 1792 established the Mint of the United States. The Mint, in its first decades, only coined gold and silver in response to deposits of that metal by citizens, returning the bullion to the depositor in the form of coins. Either gold or silver could be presented for conversion into currency, as both metals were a legal tender, a dollar was equal to both a legally defined weight of silver, and another legally defined quantity of gold. Having a currency be defined in terms of two different metals is called bimetallism. Such a system may experience instability as the price of gold and silver on the world market changes, and this took place in the first decades after 1792, as the relative values of gold and silver in Europe changed. At that time, gold or silver U.S. coins were rarely seen in the nation, as they were heavily exported because of such shifts—most pieces in circulation were foreign in origin.
In 1834, Congress made a dollar worth slightly less, thus lightening U.S. gold and silver coins (known collectively as specie), making them uneconomical to export, and they were seen more often in commerce within the U.S. With this greater circulation, Congress re-examined the existing statutes relating to the Mint, and found many provisions to be obsolete. It enacted the
Mint Act of 1837, a thorough revision of the statutes relating to the Mint. New provisions included the establishment of a bullion fund, allowing depositors to be paid without waiting for their metal to go through the coining process. The ratio of value between equivalent weights of gold and silver was adjusted slightly, allowing coins of both metals to circulate within the U.S.
Under an 1853 act, depositors could no longer have their metal struck into half dollars.
When silver prices rose relative to gold as a reaction to the California Gold Rush, silver coinage was worth more than face value, and rapidly flowed overseas for melting. Despite vocal opposition led by Tennessee Representative (and future president) Andrew Johnson, the precious metal content of smaller silver coins was reduced in 1853, allowing them to circulate. Until then, depositors of silver could choose to have their bullion struck into silver coins of any denomination of five cents or above; the Act of 1853 lightened the silver coins from the half dime to the half dollar and eliminated the right of the depositor to have silver struck into those denominations. Depositors could still choose to have silver struck into dollar coins, but since there was more than a dollar's worth of silver in a dollar coin, it was more profitable to sell the bullion to manufacturers and jewelers. So long as silver prices remained high, this effectively placed the United States on the gold standard.
Although the Mint rarely received deposits of silver for striking into coins after 1853, it purchased silver bullion using the new lightweight silver coins at above-market prices. This was illegal, as Congress had ordered that the new lightweight coins only be purchasable using gold, a provision intended to limit quantities sold to actual demand. As the silver pieces had a legal tender limit of $5, if excessive numbers were circulated, they might choke commerce. This in fact occurred, and merchants and bankers complained that the legal tender limit was causing them to have to sell accumulations at a discount to brokers.
The glut was replaced with a shortage when most federal coins were hoarded amid the economic chaos of the Civil War. Slowest to vanish was the base-metal cent, which only had value because government said it did, and at that time, confidence in government was shaken. Eventually, it too vanished from circulation and commanded a premium for change. A variety of makeshifts replaced the vanished coins, such as fractional currency and merchant's tokens. Beginning in 1864, Congress began to authorize base metal coins that would not be hoarded. It reduced the weight of the cent, causing it to be made of bronze, and also required a two-cent piece of the same metal. The following year saw the initiation of the three-cent nickel and in 1866, the five-cent nickel (today simply known as the nickel) began production. The two-cent piece, initially popular, saw declining mintages as the public preferred the smaller, more convenient nickel[a] coins.
Greenbacks, which were backed by neither silver nor gold but by the credit of the United States, and which were necessitated by vast wartime expenditures, had helped to finance the war. In the late 1860s, politicians disagreed about how quickly to have the government resume paying out gold and silver in payment of its obligations. Treasury Secretary Hugh McCulloch felt the best way to return to that practice was to withdraw the greenbacks as quickly as possible, and he did so until stopped by Congress, which felt his contractionist stand was hurting the economy. More and more silver was being mined in the Far West. Falls in the price of the metal made the option of depositing silver at the Mint in exchange for coin more attractive, and mintages of the silver dollar rose considerably in the late 1860s and into the 1870s. The silver dollar was fully legal tender, and some officials worried that the increased deposits would cause silver to drive gold from circulation as predicted by Gresham's law, endangering the gold standard.
As it had been two decades since much silver was regularly deposited for striking into coins, the fact that the United States had been on a bimetallic standard since 1792 was often forgotten. The gold standard was seen as the only possible choice, and many people assumed that the United States was on that standard, which had been adopted by strong nations like the United Kingdom (1816) and the German Empire (1871).