Technically speaking, “silver certificates” are the American paper money which came immediately before the current fiat money dollars, which were redeemable for the face value in silver coins. These silver certificates are not viable any longer, and have a very low collectible premium.
However, people now use the term mostly to refer to titles of ownership to silver that is not actually in the owner’s possession. These pieces of paper show that you own some silver stored in a vault elsewhere in the world, and although they are theoretically redeemable for the silver they describe, most of the time they are bought and sold by investors who never see or touch the silver they stand for.
The question naturally arises – is it better to actually hold your silver as physical metal bars, or in the abstract but convenient form of paper certificates, and leave the problems of storage and security to others.
The Advantages of Owning Silver Certificates vs. Physical Possession
There are several advantages to owning silver certificates as opposed to actually taking physical possession of the precious metals. The two principal benefits are convenience and personal safety. The disadvantages will be described further on in this article.
Owning only the silver certificates for a specific amount of silver – pieces of paper which are effectively deeds to the vaulted silver, which could theoretically be stored anywhere on Earth – means that you are freed of the necessity to store, transport, and otherwise handle your silver coins, rounds, and bars. You will not need to find a good place to store the metal in your home, nor will you need to carry several hundred pounds of bars or mint tubes when you move to a new residence.
Furthermore, you can buy and sell silver certificates without needing to worry about shipping the ponderous weight of silver that they represent. Money changes hands, the silver certificate is handed over, and the ownership of the silver has changed without needing to disturb the metal whether it is stacked in a Hong Kong, Florida, or Bern, Switzerland vault.
The other issue is personal safety. Although you can probably keep a physical hoard quiet, the more people find out about it, the more likely it is that there will eventually be an attempt to rob your treasure. Precious metals concentrate value in a small, anonymous, easily portable package, so you will need to take potentially expensive security measures to keep your home well defended and prevent anyone from making off with your stash.
However, if you have only silver certificates, it is extremely unlikely that anyone outside your immediate family will know. Your certificate can be carried with you if you prefer, so even if your house is burgled in your absence, the certificate will remain in your possession, whereas it would be impossible to carry a hundred pounds of silver to work, the grocery store, and the doctor’s office! A certificate can be swiped as well, but it is much easier to hide and to keep with you at all times.
The Disadvantages of Owning Silver Certificates vs. Physical Possession
Although there are obviously some advantages to owning silver certificates, keeping your silver in your possession rather than stored in a remote vault has numerous benefits, as well. One is the simple durability of the metal. In the case of a house fire, silver may melt, but it will not be destroyed, whereas a silver certificate is eminently perishable. Proving your ownership in the absence of the actual certificate could be very difficult
Using a silver certificate also means that you are prepared to place an immense amount of trust in people you have never met. There are alleged (but fairly well evidenced) historical examples of banks refusing to honor precious metal certificates in order to claim the metal for themselves, denouncing their own certificates as fraudulent and even threatening the actual owners with arrest.
There is a high chance that your silver certificates will be honored – but your ownership ultimately depends on the honor of people who could profit considerably through refusal to honor a piece of paper whose validity will ultimately be decided on the basis of how well your word stands up against theirs.
Furthermore, without actually seeing, touching, or possessing the silver, you have no direct proof that the silver your certificate represents actually exists. Although this might sound like a paranoid concern, there is also a high incentive for banks and other storage institutions to sell the same weight of silver multiple times, earning an immense profit in a way that would unlikely to ever be discovered – except in an emergency when a large number of people all wanted to redeem their certificates for physical metal, and suddenly discovered that ten, fifteen, or twenty people all held title to the same stack of silver bars. Since bank vaults are closed to the public for security reasons, there is no proof other than the bank’s word that the silver bars you have a certificate for belong only to you.
In the case of a true economic emergency, physical silver would retain its value, while a piece of paper showing ownership of silver in a vault halfway around the world might well prove useless. A bird in the hand is worth two in the bush, as the old phrase declares, and silver is much more useful to you in a tight situation than a promise to be able provide silver at some unspecified point in the future.
Finally, there is the issue of cost. Vaults do not operate out of the goodness of their heart or the milk of human kindness, but only store your silver in exchange for regular fees. After years go by, it is quite likely that these fees – which are not trivial – will erode any profit that you might have earned from appreciation of the metal. It matters little if the spot price doubles if you have already paid three times the worth of the silver in fees. Fees are generally not that high, but they still cut down on your profits sharply, and can easily be avoided by storing your silver yourself.
Risk and Silver Certificates
In the last analysis, silver certificates are privately issued fiat money. They are very risky because they are not even backed by the might and ruthless determination of a government like standard fiat money is, but only by the word of a banker – quite possibly a foreign banker. If you are comfortable with that risk, then silver certificates are probably for you. But, if you prefer solid certainties even at the cost of some inconvenience, then physical possession of the silver is superior.