The history of American money is surprisingly fascinating – for example, did you know the Constitution only granted the federal government power to issue coins, and not paper money? The founding fathers lacked faith in paper money as the continental paper bills previously minted by the Continental Congress during the American Revolution soon became worthless – giving way to the phrase “not worth a Continental”. By studying the history of American money, we can better understand the origin of currency in circulation today. Jennifer Dawson explains.
A photo of the first United States Mint in Philadelphia, 1904.
Foreign currency as legal tender
The currency used in America’s early days before and just after the Revolution was varied. Gold and silver weren’t discovered here until the mid-1800s, which means the U.S. lacked the steady supply of precious metals needed to mint currency. So, a law was therefore passed in 1793 to allow foreign coins (including English, Spanish, and French currencies) to legally be used within the American monetary system. It was only in 1857 that foreign coins no longer had legal tender status.
Unifying the nation’s currency
In 1792, after the U.S. Constitution was ratified, Secretary of the Treasury, Alexander Hamilton, launched the first Coinage Act in an effort to unify the nation’s currency. The United States Mint was also established in Philadelphia under the Act; the Mint was responsible for producing, circulating, and regulating coinage in the U.S. The U.S. dollar was also designated as the country’s official standard unit of currency. During the country’s first four decades, a bimetallic monetary system was officially implemented, meaning both gold and silver were recognized as legal tender. However, silver coins were generally more popular, while gold coins were seldom used. The silver-to-gold ratio was legally set at 15-to-1, which means it would take 15 troy ounces of silver to purchase one troy ounce of gold.
First official gold coins minted
In 1795, the country minted the first official gold coins: half eagles ($5 pieces), shortly followed by eagles ($10 pieces). The quarter eagle (a $21/2 piece) was also created the following year in 1796. Once the California Gold Rush kicked off in 1848, the gold dollar and the double eagle were also consequently minted. Today, gold coins are rarely used in trade, yet remain popular among collectors and investors. Fascinatingly, the Coinage Act also detailed the markings all minted coins ought to bear. Each coin was to be stamped with the word “Liberty” on one side, along with a corresponding image, and the year of coinage. An eagle was also to be featured on the reverse side of gold and silver coins, as well as the country’s name (“United States of America”). Copper coins, on the other hand, were to have slightly different markings; these coins also include their denomination on the flip side.
Then, in 1834, Congress changed the silver-to-gold ratio from 15-to-1 to 16-to-1, therefore ensuring the mint price of both silver and gold are lesser than their international market price ratios. Silver was exported, and gradually disappeared from the U.S. marketplace. By 1850, silver coins were no longer so easy to come across. Gold had become the main form of currency.
1848: California Gold Rush
In addition to sparking the fresh minting of new coins, the California Gold Rush also facilitated rapid economic growth, and gold mining and trading became huge industries. The United States Mint, along with sovereign mints, produced a variety of gold products, including coins and bars. Eventually, U.S. President Franklin D. Roosevelt signed Executive Order 6102, which made it illegal to hoard gold bullion, and permitted the government to seize it from its own people – needless to say this was the most controversial move made during Roosevelt’s presidency. As a result of this order, the 1933 Double Eagle Gold Coin was made one of the world’s most valuable coins. Fortunately, the gold exchange eventually recovered, and is in full swing to this very day. The 1g gold bar, for example, is an affordable investment that gives people an easy way to include gold in their investment portfolios. A 1g gold bar is also a highly liquid investment, meaning people access their money quickly when they need it.
Gold standard
The gold standard was briefly paused in 1862 during the Civil War, which meant the government started issuing fiat money that wasn’t redeemable in gold or silver. However, in 1879, the amount of paper money in circulation (about $347 million) was then frozen for around one hundred years. Finally, in 1879, the U.S. implemented a classic gold standard system, which meant the value of currency is directly linked to gold – a system that stayed in place until World War I.
The history of American money is surprisingly varied and fascinating. Although there were some struggles in the country’s early days, efforts were ultimately successful in implementing a reliable monetary system.
