History of the U.S. Currency

History of the U.S. Currency
Learn more about the history of how currency developed in the U.S.
by Square Sep 01, 2001 — 4 min read
History of the U.S. Currency

Currency became widespread in America during the colonial period. The colonists found that they needed a paper currency to help them manage the bustling trade economy that was going on in the New World. Through the course of history, economies have rested on the currencies that support them. Even in today’s global economy, simple issues like credit card processing require a strong currency to support consumers’ spending habits.

Colonial and Continental Currency

Colonial currency dates back to the late 1600s, when people in the Massachusetts Bay Colony created paper currency to simplify their active trade economy. Other colonies followed this lead, and soon many colonies were using paper money to fund transactions. This currency was to be backed by silver or gold. However, colonists soon found that they could not redeem the currency for these precious metals when they tried, so currency values quickly fell.

In 1775, the Continental Congress issued the continental as the new country’s first paper currency. The purpose of this currency was to pay for expenses associated with the Revolutionary War. Unfortunately, the value of this currency was questionable because it rested on anticipated future tax revenues, which the country hoped to collect after winning the war. The combination of a lack of backing and increasing inflation took its toll on continentals. This currency lost its value, and colonists lost their faith in currency. Two successive privately owned banks served essentially as central banks for the new country between 1791 and 1836. After Andrew Jackson opted to discontinue the second bank’s charter, the United States entered into a free banking era for the next quarter-century

Demand Notes

With the Civil War looming, the United States needed a way to fund the war. To generate money, Congress authorized new demand notes. These demand notes were the first paper currency issued by the United States government since the demise of the continentals. Demand notes ended in 1862, replaced by legal tender notes, or United States notes. All currency issued since then in the United States continues to be valid and redeemable for face value.

National Banking System

In 1863, Congress passed legislation that established the national banking system. This legislation also established a uniform national currency for the United States. The new law required the national bank to purchase United States government securities, which served as backing for national bank notes. As a part of the new national banking system, Congress established the U.S. Department of the Treasury to manage and oversee the bank notes. In 1869, the Bureau of Engraving and Printing was given the responsibility of engraving and printing faces and seals on the banknotes.

The Federal Reserve

The Federal Reserve Act established the Federal Reserve system as America’s central bank in 1913. President Woodrow Wilson was in office at this time. Federal Reserve notes went into circulation in 1914, taking the place of the now-defunct national bank notes. By 1918, denominations of these new notes spanned from $1 to $10,000. National banks had the authority to issue national currency, which was secured by the purchase of U.S. bonds.

Redesigned Notes

The year 1929 was an important year in the history of U.S. currency. The federal government instituted redesigns that involved making the notes smaller and standardizing designs for each bill denomination. The purpose of these changes was to reduce expenses. In 1957, the words “In God We Trust” first appeared on currency, thanks to a law passed amid Cold War fears. By 1969, the larger denominations, $500 and up, were discontinued.

Newer technology made counterfeiting more difficult thanks to features such as microprinting and a security thread running through bills. Another currency redesign occurred in 1996: New background colors added extra security against counterfeiting. Watermarks on the bills also appear when they are held up to a light. The absence of watermarks would indicate a counterfeit bill. In 2013, the $100 bill received an additional redesign to enhance security. A security ribbon now crosses the bill to the right of Benjamin Franklin’s picture.

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