History of the United States dollar
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The history of the
Since the founding of the
Origins: the Spanish dollar
The United States Mint commenced production of the United States dollar in 1792 as a local version of the popular Spanish dollar or piece of eight produced in Spanish America and widely circulated throughout the Americas from the 16th to the 19th centuries. Made with similar silver content to its counterparts minted in Mexico and Peru, the Spanish, U.S. and Mexican silver dollars all circulated side by side in the United States, and the Spanish dollar and Mexican peso remained legal tender until the Coinage Act of 1857.
Continental Currency
After the
Congress appointed
Runaway inflation and the collapse of the Continental currency prompted delegates at the
Coinage Act of 1792
On July 6, 1785, the
Subsequently, the American administration of President George Washington turned its attention to monetary issues again in the early 1790s, under the leadership of Alexander Hamilton, the Secretary of the Treasury at the time. Congress acted on Hamilton's recommendations, with the Coinage Act of 1792 that established the dollar as the basic unit of account for the United States.
The
19th century
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In the early 19th century, the intrinsic value of gold coins rose relative to their nominal equivalent in silver coins, resulting in the removal from commerce of nearly all gold coins, and their subsequent private melting. Therefore, in the Coinage Act of 1834, the 15:1 ratio of silver to gold was changed to a 16:1 ratio by reducing the weight of the nation's gold coinage. This created a new U.S. dollar that was backed by 1.50 grams (23.22 grains) of gold. However, the previous dollar had been represented by 1.60 g (24.75 grains) of gold. The result of this revaluation, which was the first devaluation of the U.S. dollar, was that the value in gold of the dollar was reduced by 6%. Moreover, for a time, both gold and silver coins were useful in commerce.
In 1853, the weights of U.S. silver coins (except the dollar itself, which was rarely used) were reduced. This had the effect of placing the nation effectively (although not officially) on the gold standard. The retained weight in the dollar coin was a nod to bimetallism, although it had the effect of further driving the silver dollar coin from commerce. Foreign coins, including the Spanish dollar, were also widely used[9] as legal tender, until 1857.
With the enactment of the
During the 19th century the dollar was less accepted around the world than the
In 1878, the Bland–Allison Act was enacted to provide for freer coinage of silver. This act required the government to purchase between $2 million and $4 million worth of silver bullion each month at market prices and to coin it into silver dollars. This was, in effect, a subsidy for politically influential silver producers.
The discovery of large silver deposits in the Western United States in the late 19th century created a political controversy. Due to the large influx of silver, the intrinsic value of the silver in the nation's coinage dropped precipitously. On one side were agrarian interests such as the
Gold standard
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Note: all references to 'ounce' in this section are to the
Bimetallism persisted until March 14, 1900, with the passage of the Gold Standard Act,[11] which provided that:
... the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard ...
Thus the United States moved to a
The gold standard was suspended twice during
For as long as the United States remained neutral in the war, it remained the only country to maintain its gold standard, doing so without restriction on import or export of gold from 1915 to 1917. When the United States became a belligerent in the war, President Wilson banned gold export, thereby suspending the gold standard for foreign exchange. After the war, European countries slowly returned to their gold standards, though in somewhat altered form.[12][13]
During the
The Gold Reserve Act
In early 1933,
For foreign exchange purposes, the set $20.67 per ounce value of the dollar was lifted,[when?] allowing the dollar to float freely in foreign exchange markets with no set value in gold. This was terminated after one year. Roosevelt attempted first to restabilize falling prices with the Agricultural Adjustment Act; however, this did not prove popular, so instead the next politically popular option was to devalue the dollar on foreign exchange markets. Under the Gold Reserve Act the price of gold was fixed at $35 per ounce, making the dollar more attractive for foreign buyers (and making foreign currencies more expensive for those holding dollars). This change led to more conversion of gold into dollars, allowing the U.S. to effectively corner the world gold market.[15][16]
The suspension of the gold standard was considered temporary by many in markets and in the government at the time, but restoring the standard was considered a low priority to dealing with other issues.[12][15]
Under the post-
In March 1968, the effort to control the private market price of gold was abandoned. A two-tier system began. In this system all central-bank transactions in gold were insulated from the free market price. Central banks would trade gold among themselves at $35/ounce (112.53 ¢/g) but would not trade with the private market. The private market could trade at the equilibrium market price and there would be no official intervention. The price immediately jumped to $43/ounce (138.25 ¢/g). The price of gold touched briefly back at $35/ounce (112.53 ¢/g) near the end of 1969 before beginning a steady price increase. This gold price increase turned steep after President
In the early 1970s,
U.S. dollar value vs. gold value
The sudden jump in the price of gold after the demise of the Bretton Woods accords was a result of the significant prior debasement of the US dollar due to excessive inflation of the monetary supply via central bank (Federal Reserve) coordinated
Shortly after the dollar price of gold started its ascent in the early 1970s, the price of other commodities such as oil also began to rise. While commodity prices became more volatile, the average price of oil as expressed in gold (or vice versa) remained much the same in the 1990s as it had been in the 1960s, 1970s and 1980s.
Note Issuance
Silver certificates
United States silver certificates were a type of
Since the early 1920s, silver certificates were issued in $1, $5, and $10 denominations. In the 1928 series, only $1 silver certificates were produced. Fives and tens of this time were mainly Federal Reserve notes, which were backed by and redeemable in gold. In 1933, Congress passed the Agricultural Adjustment Act which included a clause allowing for the pumping of silver into the market to replace the gold. A new 1933 series of $10 silver certificate was printed and released, but not many were released into circulation.
In 1934, a law was passed in Congress that changed the obligation on Silver Certificates so as to denote the current location of the silver.
The last
Gold certificates
Gold certificates were another form of representative paper money issued by the United States Treasury from 1865 to 1933 and redeemable in gold. While the United States observed a gold standard, the certificates were a convenient way to pay in gold.
Wildcat Notes
Paper currency was issued by poorly capitalized state-chartered "wildcat" banks in the United States during the
Demand Notes
Demand Notes are a type of United States paper money issued from August 1861 to April 1862 during the American Civil War in denominations of 5, 10, and 20 US$. They were the first issue of paper money by the United States that achieved wide circulation.
National Bank Notes
National Bank Notes were United States currency banknotes issued by National Banks chartered by the
United States Notes
A United States Note, also known as a Legal Tender Note, was a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "
While issuance of United States Notes ended in January 1971, existing United States Notes are still valid currency in the United States today, though rarely seen in circulation.
Both United States Notes and
The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a "
Federal Reserve Notes
Congress continued to issue paper money after the Civil War, the most important of which was the
Use as international reserve currency
History
World War II devastated European and Asian economies while leaving the United States' economy relatively unharmed.[21] As European governments exhausted their gold reserves and borrowed to pay the United States for war material, the United States accumulated large gold reserves. This combination gave the United States significant political and economic power following the war.[22]
The
While Bretton Woods institutionalized the dollar's importance following the war, Europe and Asia faced dollar shortages. The international community needed dollars to finance imports from the United States to rebuild what was lost in the war.
The Marshall and Dodge plans' successes have brought new challenges to the U.S. dollar. In 1959, dollars in circulation around the world exceeded U.S. gold reserves, which became vulnerable to the equivalent of a bank run. In 1960, Yale economist Robert Triffin described the problem to Congress: either the dollar was not freely available and other countries could not afford to import American goods, or the dollar was freely available but confidence that the dollar could be converted to gold would wane.[26]
Eventually, the United States chose to devalue the dollar. During the early 1960s American officials largely prevented the conversion of dollars to gold with a series of "gentlemanly" agreements and other policies – which included the
Impact
The United States enjoys some benefits because the dollar serves as the international reserve currency. The United States is less likely to face a balance of payments crisis.
Fiat standard
Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.[29] Consequently, some proponents of the intrinsic theory of value believe that the near-zero marginal cost of production of the current fiat dollar detracts from its attractiveness as a medium of exchange and store of value because a fiat currency without a marginal cost of production is easier to debase via overproduction and the subsequent inflation of the money supply.
In 1963, the words "PAYABLE TO THE BEARER ON DEMAND" were removed from all newly issued
All circulating notes, issued from 1861 to present, will be honored by the government at face value as legal tender. This means that the federal government will accept old notes as payments for debts owed to the federal government (taxes and fees), or exchange old notes for new ones, but will not redeem notes for gold or silver, even if the note states that it may be thus redeemed. Some bills may have a premium to collectors.[citation needed]
The only exception to this rule is the $10,000 gold certificate of Series 1900, a number of which were inadvertently released to the public because of a fire in 1935. This set is not considered to be "in circulation" and, in fact, is stolen property. However, the government canceled these banknotes and removed them from official records. Their value, relevant only to collectors, is approximately one thousand US dollars.[31]
According to the Federal Reserve Bank of New York, there is $1.2 trillion in total US currency in worldwide circulation as of July 2013.[32]
Color and design
The federal government began issuing paper currency during the American Civil War. As photographic technology of the day could not reproduce color, it was decided the back of the bills would be printed in a color other than black. Because the color green was seen as a symbol of stability, it was selected. These were known as "greenbacks" for their color and started a tradition of the United States' printing the back of its money in green. The author of that invention was chemist Christopher Der-Seropian.[33] In contrast to the currency notes of many other countries, Federal Reserve notes of varying denominations are the same colors: predominantly black ink with green highlights on the front, and predominantly green ink on the back. Federal Reserve notes were printed in the same colors for most of the 20th century, although older bills called "silver certificates" had a blue seal and serial numbers on the front, and "United States notes" had a red seal and serial numbers on the front.
In 1928, sizing of the bills was standardized (involving a 25% reduction in their current sizes, compared to the older, larger notes nicknamed "horse blankets").[34] The Secretary of the Treasury directed a reduction in paper currency from a 7+7⁄16 inch by 3+9⁄64 inch size to a 6+5⁄16 inch by 2+11⁄16 inch (6.31" × 2.69") size, which allowed the Treasury Department to produce 12 notes per 16+1⁄4 inch by 13+1⁄4 inch sheet of paper that previously would yield 8 notes at the old size.[35] Modern U.S. currency, regardless of denomination, is 2.61 in ( 66.3 mm) wide, 6.14 in (156 mm) long, and 0.0043 in ( 0.109 mm) thick. A single bill weighs about fifteen and a half grains (one gram) and costs approximately 4.2 cents for the Bureau of Engraving and Printing to produce.
Another series started in 1996 with the $100 note, adding the following changes:
- A larger portrait, moved off-center to create more space to incorporate a watermark.
- The watermark to the right of the portrait depicting the same historical figure as the portrait. The watermark can be seen only when held up to the light (and had long been a standard feature of all other major currencies).
- A security thread that will glow pink when exposed to ultraviolet light in a dark environment.[36] The thread is in a unique position on each denomination.
- Color-shifting inkthat changes from green to black when viewed from different angles. This feature appears in the numeral on the lower right-hand corner of the bill front.
- Microprinting in the numeral in the note's lower left-hand corner and on Benjamin Franklin's coat.
- Concentric fine-line printing in the background of the portrait and on the back of the note. This type of printing is difficult to copy well.
- The value of the currency written in 14pt Arial font on the back for those with sight disabilities.
- Other features for machine authentication and processing of the currency.
Annual releases of the 1996 series followed. The $50 note followed on June 12, 1997, and introduced a large dark numeral with a light background on the back of the note to make it easier for people to identify the denomination.[37] The $20 note in 1998 introduced a new machine-readable capability to assist scanning devices. The security thread glows green under ultraviolet light, and "USA TWENTY" and a flag are printed on the thread, while the numeral "20" is printed within the star field of the flag. The microprinting is in the lower left ornamentation of the portrait and in the lower left corner of the note front. As of 1998[update], the $20 note was the most frequently counterfeited note in the United States. The new design of the $5 and $10 notes were released in 2000.
In 2003, the Treasury announced that it would introduce new colors into the
The new $20 bills entered circulation on October 9, 2003 and the new $50 bills on September 28, 2004. The new
The 2008 $5 bill contains significant new security updates. The obverse side of the bill includes patterned yellow printing that will cue digital image-processing software to prevent digital copying, watermarks, digital security thread, and extensive microprinting. The reverse side includes an oversized purple number 5 to provide easy differentiation from other denominations.[38]
On April 21, 2010, the U.S. Government announced a heavily redesigned
As a result of a 2008 decision in an accessibility lawsuit filed by the American Council of the Blind, the Bureau of Engraving and Printing is planning to implement a raised tactile feature in the next redesign of each note, except the $1 and the current version of the $100 bill. It also plans larger, higher-contrast numerals, more color differences, and distribution of currency readers to assist the visually impaired during the transition period.[41] In 2016, the Treasury announced a number of design changes to the $5, $10 and $20 bills to be introduced in this next redesign. The redesigns include:[42][43]
- The back of the $5 bill will be changed to showcase historical events at the pictured I Have A Dream speech), and Eleanor Roosevelt(who arranged Anderson's performance).
- The back of the $10 bill will be changed to show a 1913 march for women's suffrage in the United States, plus portraits of Sojourner Truth, Lucretia Mott, Susan B. Anthony, Alice Paul, and Elizabeth Cady Stanton.
- On the $20 bill, Andrew Jackson will move to the back (reduced in size, alongside the White House) and Harriet Tubman will appear on the front.
See also
- Continental currency
- Coinage Act of 1792
- Coinage Act of 1849
- National Bank Act (1863)
- Coinage Act of 1864
- Coinage Act of 1873
- Criticism of the Federal Reserve
- History of central banking in the United States
- Nixon shock (1971)
- International use of the U.S. dollar
References
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- ^ U.S. Constitution, Article I, section 8.
- ^ Rozeff, Michael (2014-08-18). The U.S. Constitution and Money: Corruption and Decline (PDF). Archived from the original (PDF) on January 17, 2013.
- ^ Fitzpatrick, John C., ed. (1934). "TUESDAY, AUGUST 8, 1786". Journals of the Continental Congress 1774-1789. XXXI: 1786: 503–505. Retrieved December 5, 2019.
- ^ "Independence, Colonial and Continental Currency: A New Nation's Currency". San Francisco, CA: Federal Reserve Bank of San Francisco.
- ISBN 978-1933550282.
- ^ Bly, Nellie (1890). "Chapters I,IX". Around the World in Seventy-Two Days. The Pictorial Weeklies Company.
- ^ "Gold Standard Act of 1900". The Statutes at large of the United States of America. Washington: Government Printing Office. 1901. pp. 45–50.
- ^ a b c d e Crabbe, Leland (June 1989). "The International Gold Standard and U.S. monetary policy from World War I to the New Deal". Federal Reserve Bulletin.
- ^ a b Bernanke, Ben (March 2, 2004). "Remarks by Governor Ben S. Bernanke: Money, Gold and the Great Depression". At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia.
- ^ "Gold Clause Cases". Answers.com. Retrieved 2008-07-03.
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- ^ "United States Paper Money Information". USPaperMoney.Info. Retrieved 2014-12-14.
- ^ Krause, Chester L.; Lemke, Robert F. (2003). Standard Catalog of United States Paper Money.
- ^ "BEP HISTORY FACT SHEET NATIONAL BANK NOTES". Historical Resource Center. Bureau of Engraving and Printing. 2013. Retrieved 2024-01-13.
- ^ "FAQs: Legal Tender Status". U.S. Treasury. January 4, 2011. Retrieved 2014-12-16.
- ^ Tassava, Christopher. "The American Economy during World War II". Economic History Association.
- ISBN 978-0521785037.
- ISBN 9780195030105.
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- ^ Meier 1974, p. 41.
- ^ Mayer 1981, p. 108.
- ^ Meier 1974, p. 164.
- ^ Kotlikoff, Laurence (2006). "Is the United States Bankrupt?" (PDF). Federal Reserve Bank of St. Louis.
- ISBN 978-0-7948-2008-4.
- ^ "Friedberg 1225 - the Series 1900 $10,000 | PMG".
- ^ "How Currency Gets into Circulation". Federal Reserve Bank of New York. July 2013. Retrieved 2016-05-23.
- ^ "Armenian Studies for Secondary Students" (PDF). School of Education University of Connecticut. 1974.
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- ^ Treasury Department Appropriation Bill, 1929. U.S. Government Printing Office. 1928. p. 105.
- ^ "Security Features of $100 Note Issued 1996 to 2013" (PDF). uscurrency.gov. U.S. Currency Education Program. Retrieved 13 July 2020.
- US Treasury. June 12, 1997. Retrieved 2014-12-16.
- ^ "Note of Caution". American City Business Journals. February 16, 2008. Retrieved 2014-12-16.
- ^ "U.S. Government Unveils New Design for the $100 Note". uscurrency.gov (Press release). U.S. Currency Education Program. April 21, 2010. Retrieved 13 July 2020.
- ^ Martinez, Alejandro J. (April 21, 2010). "Money Makeover: $100 Bill Gets Facelift to Fight Fakes". The Wall Street Journal.
- ^ See Federal Reserve Note for details and references
- ^ Calmes, Jackie (April 20, 2016). "Harriet Tubman Ousts Andrew Jackson in Change for a $20". The New York Times.
- ^ "Anti-slavery activist Harriet Tubman to replace Jackson on $20 bill". USA Today. Retrieved April 21, 2016.