A Brief History of American Currency

The history of American currency is one of trial and error that, many are surprised to learn, did not stabilize into a truly national currency until relatively recently. Today the dollar is the most used currency around the world, even having been adopted by several countries as their official currencies, like Panama and El Salvador. Others, like Cambodia, Zimbabwe, and the Bahamas, use the dollar as their unofficial currencies. The story of how the U.S. dollar came into being as we know it today is long and complex, but there are some key events and periods that stand out.  

Colonial Roots

Before independence, North American colonists used a mixture Spanish, French, and English money. Spanish coinage tended to hold its value better so it was more popular with the colonists. However, their dependence on foreign currency could not be sustained once the fight for independence against the British began. So, to help finance the war, the Continental Congress authorized the issuance of currency that was redeemable in Spanish currency. The Continental currency, however, was an abysmal failure, falling victim to rampant inflation and counterfeiting. Americans maintained their reliance on foreign and state issued currencies until several years after independence.

The Coinage Act of 1792

In an attempt to bring some sanity to the currency system, Congress passed the Coinage Act, sometimes referred to as the Mint Act, in 1792. The act established the U.S. Mint and a federal monetary system, meant to replace the hodgepodge of state and foreign currencies in use. The act also established the dollar as the unit of currency and set denominations for each coin to be minted, specifying their value in gold, silver, and copper. The Coinage Act to brought some stability to the currency confusion rampant in the earliest years of the U.S., but it still permitted banks to mint their own currencies and nearly 1,600 banks throughout the Union were doing so. It has been estimated that by the 1860s there were more than 7,000 different types of currency, mostly from banks, circulating in the U.S.

Act of July 17, 1861

Much as their grandfathers needed money for the revolutionary war, government officials in 1861 realized the country would need cash for the fight against the Confederacy and passed the Act of July 17, 1861. This act was the first to give the Treasury the power to print paper money. The act did not, however, limit banks from issuing their own money. From 1863 to 1929, the government continued to permit banks the authority to print national bank notes, though they did try to reign in the chaos by establishing some standards. They had to be printed on the same paper and carry the same designs as the national currency.

Federal Reserve Act of 1913

Wanting to finally centralize the currency system of the United States, Congress established a the Federal Reserve Bank and gave them the power to circulate and regulate U.S. currency. The ability of banks to issue currency was to be slowly phased out by 1929. That year they also unveiled new, standardized designs for all U.S. currency, making it easier for Americans to spot counterfeit bills. Today, the Federal Reserve continues to oversee U.S. currency.