History of US currency

 History of US currency

 

 

What's a piece of paper worth? Not much, unless it's very special paper. If the government prints on it, then you can spend it just about anywhere, right? Well, today, yes. But American currency hasn't always been such a sure thing.

 

When this piece of paper was originally printed, you could get a lot for it, too. But soon, so many were issued that it became nearly worthless. But why do you need to know your money's worth? Because everyone makes financial decisions and that's easier to do when we have a stable, reliable currency.

Over the years, there have been successes and failures in attempting to reach that goal. The currency that you see around you chronicles many of those attempts, and provides a record of the country's economic evolution. Like the country itself, our first paper currency was born of the revolutionary war. To fund the war, the continental congress issued paper notes backed up by the promise of gold or silver after independence was won. But as the fighting dragged on, the congress began to churn out more and more notes, and they began to lose their value. By war's end, inflation was so bad that the continental was worth only a fraction of its original value. After the war, currency was issued by private banks, each with its own design. This complicated the development of commerce between the states, because of fluctuations in the relative value of different currencies.

A Virginian might have a hard time knowing the true value of a currency issued in Massachusetts. During the civil war, both north and south resorted to printing money to help pay for their war efforts. The cheap green ink used to print money in the north led to the name "Greenbacks." As more and more were printed, their purchasing power fell, and once again, the country experienced huge rates of inflation. Metal was a necessary military material and with rising prices, people hoarded their metal coins. To meet the need for small change, the government issued currency in fractional denominations - what abraham lincoln called "Paper coins." In the years after the civil war, most currency was issued by state banks or the new federally charted banks. In 1863, the united states got its first legal tender notes, engraved with intricate symbolic depictions of the american west, such as native americans, pioneers, and bison. But with the failure of so many past currencies still fresh in the minds of americans, the country was soon debating the best means of keeping these new bills as valuable as they were beautiful. In 1879, congress tied the value of the dollar to gold.

With federal currency backed by precious metals, every dollar would be as good as a gold nugget. Debates over the gold standard were common in late-19th century america. With the economy growing rapidly, and the money supply constrained by the gold supply, prices fell during the 1880s. Believing that a more flexible money supply would benefit the economy and help avoid banking crises, congress established the federal reserve in 1913 as an independent central bank. The idea was that a federal bank could exert more control over the country's supply of money and credit, expanding and contracting it to cushion the natural cycles of boom and bust. But the 20th century had some major tests in store for the newly minted federal reserve system, some of which would prove quite difficult. In the early 1930s, a severe banking crisis developed, and many believed it worsened when the fed allowed the money supply to tighten up. Soon after, the gold standard was abandoned, as the economy struggled to recover from the great depression.

During world war ii, the fed lost much of its independence, as monetary policy was subordinated to the financial needs of the war. The fed wouldn't regain its political independence until 1951. And from the late 1960s through the early 1980s, inflation got out of control, at times reaching double digits. The fed responded with new policies to control inflation. Since then, the monetary policies of the federal reserve aimed at maintaining low, stable inflation and maximum sustainable employment have been highly successful. And federal reserve notes, now the sole u.s. Currency, are a mainstay of the global economy two-thirds of them are held outside of the country. But the role of paper currency in the growing world of money may have reached its peak. These days, most of our money changes hands through checks, credit cards, debit cards, and electronic payment systems. Along with paper currency, the fed processes millions of these modern transactions every day. These transactions are just a part of how the fed influences and participates in our nation's economy. As our money and banking system evolves beyond its heritage of paper currency, the fed continues to adapt to ensure the stability of the dollar and the economy. Here at the federal reserve bank of san francisco, you can explore the many things the fed does, and what it means to you.

US currency