This problem was made worse by the bi-metallic standard used to back the coinage. The early U.S. dollar was backed by silver and gold at a ratio established by Congress — when the actual value of the metals relative to each other changed, the result was the export of the more valuable coin to be melted down. Thus, silver dollars, which had been overvalued relative to Spanish 8 real coins, became scarce — to the point where the Mint ceased producing them in1804. This happened to gold coins as well after 1803.
The problem was not solved until the 1830s, when Congress changed the composition of U.S. coins, making them less susceptible to melting due to the changing market price of bullion. By 1857, increased production at the Mint, modifications in the composition of U.S. coins and discoveries of new sources of gold and silver made it possible for Congress to demonetize foreign coinage. For the first time, American coins were the only legal tender coinage in the U.S.!
Did You Know?
The first regular-issue U.S. coins were the “Fugio” cents authorized by Congress in 1787 and produced at the New Haven mint under contract with James Jarvis. Jarvis was unable to deliver the specified number of coins. The ensuing scandal paved the way for the establishment of the U.S. Mint in 1792.