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United States Dollar (USD) History
The British colonies used multiple modes of currency. Spanish coins were prevalent, as were British coins, but by no means were they the only two currencies in use or trade.
Throughout the late 15th, the 16th, and well into the 17th centuries, the currency of the British empire and other countries were accepted as valid tender in the New World. Currency value disparity, appearance variety and longevity often caused consternation between users and vendors.
Limited amounts of privately minted and issued coinage were used predominately as local currency and not widely recognised in all 13 colonies. Large estates and local banks issued their own currency as needed, and keeping abreast of exchange rates was often frustrating.
Spanish currency was often the inter-colonial remittance preferred. One common cross-reference method of exchange rate determination was to rank each currency mode, if recognised as valid from one province to another, against Spanish coin value. Even the word dollar referred to the Spanish milled dollar, equal in monetary value to eight Spanish units of currency: reales or 'pieces of eight.'
Mexican currency shared an exchange rate at one peso per dollar.
Adding to the confusion were the commodity currencies—non-denominational hard goods used in trade. Beaver, bear, buffalo and other pelts, tobacco and sacred shell beads called wampum were bartered for food, weapons and services, although wampum was most often used when trading with Native Indians for pelts that were later traded or sold in colonial settlements.
In 1690, the Massachusetts Bay Colony printed the first paper currency backed by any form of government in the New World. Soon, several colonies were printing their own currencies, adding to the confusion and disparity from not only region to region but also from town to town, because there was no formal regulation or unifying financial base.
Some bank and private issuances—both coin and eventually paper—were backed by precious metals; others were backed by nothing but reputation. The colonial government issued paper currency to facilitate trade, but rampant forgery and lack of a solidifying financial base quickly eroded the reputation of Colonial currency. Its value and legitimacy fell rapidly, and the currency held no consistent or lasting value, relative to each other or to that of other nations.
In 1739, Benjamin Franklin had his Philadelphia printing company engage in the first counterfeit-protected production of currency. He included a raised imprint from nature on every bill the outline of an actual leaf, an action not popular with other printers. As such, anti-counterfeiting measures didn't take hold until centuries later.
In 1764, because of the ease of counterfeiting and the extreme fluctuation of Colony currency, King George issued a ban on all paper currency issued by the Colonies, following years of increasingly harsh restrictions.
The British Parliament issued currency declarations and laws regarding the Colonial currency in 1751 and 1764, each aimed at reducing forgery and limiting Colonial currency independence. King George finally prohibited the Colonies from printing currency in 1771, making the Virginia pound the last colonial currency to be developed in 1755.
In 1775, the Continental Congress authorised issuance of paper currency to finance the Revolutionary War and called it Continental Currency. The financial worth was queued against future tax revenue and, thereby, creating the world's first government-led hedge fund, relying on the success of the venture to later create actual value against tax revenue.
For the purposes of immediate use, however, Continental Currency was given value relative to states' currency values. It held a 5-shillings value against the Georgia pound; a 6-shilling value against the pound currencies of Connecticut, Massachusetts, New Hampshire, Virginia and Rhode Island. Continental Currency claimed an exchange rate of 7.5 shillings against the pound currencies of Delaware, Maryland, Pennsylvania and New Jersey. Against the pound currencies of New York and North Carolina, it held a value of 8 shillings. Against the South Carolina pound, Continental Currency was valued at 32.5 shillings.
It's commonly believed that the devaluation of Continental Currency was because of rampant forgery that destabilised currency valuation, and loose monetary policy and poor communication from the Continental Congress. The states to continued to issue bills of credit, and private, state and Continental currency devalued almost as quickly as it was printed, becoming almost worthless by the end of the war, giving rise to the phrase, 'not worth a Continental.'
The British led the forgery campaign of Continentals, waging both a physical war and an economic one against the colonies. Initially released in New York, the large scale forgeries were eventually circulated throughout the colonies and destabilised the entire currency line before they were detected and called in by the Continental Congress.
However, experts believe that part of credit the devaluation to all the currency that flooded on the market. During the Revolutionary War, Congress issued $241,552,780 in Continental Currency, also called Continentals. Denominations ranged from 1/6th of a dollar to $80 and various increments between them.
The War of Independence
In 1776, the United States Constitution provided authorisation for the fledgling nation to provide its own means of currency, noting that Congress shall have the power '...to coin money,' although decades passed before the US minted its own currency.
By 1778, Continentals retained at most 20% of their face value, and by 1780, that percentage fell to less than 3%. By May of 1781, they had become so worthless that they were withdrawn from circulation.
After the collapse of the Continental Currency, Congress installed Robert Morris as the Superintendent of Finance. In late 1781 and at his recommendation, the United States granted a 10-year charter to the country's first commercial bank, The Bank of North America, to act as a central bank and currency issuer for United States currency.
The Bank of North America was a private business chartered on December 31, 1781 and opened on January 7, 1782, funded partially by coin borrowed from France and near the end of the war, by Morris own funds to back notes in his name. The bank also issued notes backed by France's gold coin. It was succeeded by The First Bank of the United States as the country's central bank in 1791. The Bank of North America continued to operate as a commercial enterprise.
The First Bank of the United States operated as the country's central bank from 1791 until its charter was not renewed in 1811.
In 1786, the Continental Congress accepted the need for a unified currency system for the fledgling country. The delegates to the Constitutional Convention, May 25 to September 17, 1787, included in the Constitution conditions that prohibited the states from printing their own currency. The Constitution was ratified in 1788.
In 1789, the dollar became the official, though casually enforced, currency of the United States when Congress passed a primarily symbolic resolution declaring it so.
Congress attempted to revitalise the currency by recalling the older, worn bills and reissuing newer ones that were harder to counterfeit. The effort did not succeed, and the currency was eventually replaced at a value of 1000 Continentals to a single silver dollar or in exchange for treasury bonds at 1% of the currency's face value in the 1790s.
Benjamin Franklin commented that the Continentals acted as a de facto tax for the war.
It still took until 1792 to pass The Coinage Act, also called the Mint Act, and did so primarily at the urging of Alexander Hamilton who was then Secretary of the Treasury. The Coinage Act formally and officially declared the dollar as the basic unit of account and included authorisation to mint and print currency independent from that of other governments.
Section 9 of the Coinage Act authorised production of various coins, including 'dollars or units.' Section 20 of the Act officially authorised the establishment of a mint to generate and regulate issues of coins.
The 1786 declaration of 'official' currency and the 1792 legislation were benchmarks leading to the US finally issuing its own official dollar pieces based on Hamilton's precious metal configuration written into The Coinage Act.
The value of the 'dollar' was referenced as 'equal to one Mexican peso' and contained between 371 and 416 grains (27.0 grams) of silver, depending on purity. The eagle which was valued at $10 was to contain 247 and 270 grains of gold, depending on purity.
Alexander Hamilton based the coinage estimated weights on that of worn Spanish coin and, later, Mexican pesos. A new Mexican peso weighed 377 grains, and therefore, the US dollar was slightly discounted.
The gold equivalent of a Spanish dollar in sterling was noted as £1 equalled $4.80. The sterling-to-dollar exchange rate was £1 to $4.86-2/3 which remained the British pound - United States dollar exchange rate until Britain released its currency from the gold standard in 1931.
The Coinage Act of 1792 authorised not only the US to mint and print its own currency, but it authorised and specified the denominations to be used. Coinage was outlined as fractions of a whole. Eagles were the $10 denomination used as the initial base point. The dollar at 90% silver alloy content was designated as 1/10th of an eagle. The Coinage Act also required, at 90% silver allow content, generation of coins at 1, half, quarter, 1/10th and 1/20th of a dollar the 1-dollar coin, 50-cent piece, the 25-cent piece, the 10-cent piece and the 5-cent piece, nicknamed the half-dollar, the quarter, the dime, and the nickel, respectively.
The one cent piece had yet to be conceptualised or authorised.
Until 1857, however, Spanish and Mexican currency were still in accepted as legal tender anywhere in the country.
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