United States Currency History

The history of currency in the U.S. dates back well over 200 years. Our current system was created by early American colonists in the late eighteenth century. Though it has changed somewhat since that time, it is still based on many of the revolutionary ideas implemented at its creation. These include the dollar as the basis of currency and the use of a decimal system. This well-planned system of currency has led to the strength of the dollar in today's world market.
Late Eighteenth Century

Throughout the 1700s, the earliest U.S. colonists relied on a mixture of Spanish, French and English currencies for business and trade. By 1775, as the U.S. began to prepare for the War of Independence with Great Britain, Colonial leaders realized that the new country would need its own currency. The new currency would not only be needed to help finance the war but also help distinguish the U.S. as its own country, separate from its European roots. In 1775, the Continental Congress authorized a system called the Continental Currency. These early forms of money were tied to Spanish dollars, which were widely used in the U.S. at the time.
The Mint Act of 1792

As the U.S. emerged victorious from the Revolutionary War, the country's leaders recognized the need for a more advanced and functional currency system. Led by Alexander Hamilton, Congress passed the Mint Act of 1792, sometimes called the Coinage Act of 1792. This act established the dollar as the main unit of currency and gave the U.S. the honor of being the first country to adopt a decimal-based currency. The world "dollar" was a nod to the country's early reliance on Spanish silver dollars. It is derived from the word "daler," short for "Joachimsdaler," a mine in the Czech Republic that has been a source of silver for Spain since the 1500s.
State Currency and the First Paper Money

From the passage of the Mint Act in 1792 through the start of the Civil War in 1861, federal currency was issued only in the form of coins, which were redeemable for silver. During this time, there was little to no regulation of state-produced currency. As a result, over 1,600 banks in various states were printing their own forms of currency. By 1861, over 7,000 different types of currency were being used in the U.S. This not only led to confusion but also caused devaluation and inflation-like effects. In July 1861, Congress passed an act authorizing the U.S. mint to print paper currency, called "greenbacks." By 1863, the National Bank Act was passed and changed the name of the U.S. paper currency to "legal tender." At the same time, this act put regulations in place that limited the ability of the states to print money with abandon. Upon the passage of this act, states could still print money, but they were standardized as "national bank notes" and could only be printed on paper provided by the federal government.
The Gold Standard and the Great Depression

On March 4, 1900, Congress passed the Gold Standard Act, which tied the value of U.S. currency to gold. By the end of World War I, the U.S. was the only country that had successfully maintained the gold standard for its currency. While this was considered a success at the time, the years of the Great Depression had a severe impact on the gold standard in the U.S. To keep gold ratios to the dollar at appropriate levels, Congress continually raised interest rates throughout the 1930s. This, coupled with citizens' tendencies to hoard gold during this period, forced the U.S. off the gold standard for the first time in three decades. By the end of the Great Depression and the start of WWII, the U.S. was back on the gold standard. During this time, most major world currencies were tied to the U.S. dollar, making the gold standard the effective system for most of the world.
The Federal Reserve

In response to bank runs and panics in the early twentieth century, Congress passed the Federal Reserve Act of 1913, which established the Federal Reserve as the Central Bank of the U.S. It also limited the printing of currency to those issued by the Reserve. Today, this organization acts as a liaison between private financial interests and those of the federal government. It is responsible for managing the U.S. money supply by controlling inflation and deflation. The Federal Reserve also helps to oversee financial interests in the U.S., both public and private.


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