When did the U.S. start using paper money?

By Andrew Beattie AAA
A:

On February 3, 1690, the Massachusetts Bay Colony issued the first paper money in the U.S., in order to pay for its war. Massachusetts was a truly pioneering colony when it came to money. They were also the first to mint their own silver coins in 1652, despite a British law against it. The paper money created in 1690 was called a bill of credit, and represented the colony's obligation to the soldiers. The soldiers could spend/trade the colony's IOU just like silver and gold coins.

During the revolution of 1775, the colonial leaders tried to repeat Massachusetts' paper experiment on a wider scale, but the newly christened continentals lacked any backing, such as silver or gold. On a small scale it may have worked, but so much money was printed that rapid inflation stripped them of all their value.

Less than 100 years later, two competing currencies were used to finance the opposing sides of the Civil War. Their values fluctuated with the fortunes of war. It wasn't until the National Banks Act after the civil war that the U.S. government introduced a monetary system where banks could issue paper notes based on their holding of government bonds. These disparate currencies were taxed out of existence in the following decades and replaced with national bank notes, giving the U.S. its first uniform paper currency.

Learn more about monetary policy in our related article, Manipulating Money Supply And The Market.

This question was answered by Andrew Beattie.

RELATED FAQS

  1. What is QE3 (quantitative easing)?

    "Quantitative easing" refers to steps that the U.S. Federal Reserve takes in attempting to boost the country's lagging economy. ...
  2. How is Libor determined?

    Libor is the major rate used to price debt stock. Libor is actually a set of several benchmarks that reflect the average ...
  3. Why do interest rates change?

    Interest is simply the cost of borrowing money. As with any good or service in a free market economy, price ultimately boils ...
  4. What are austerity measures?

    Austerity measures are attempts to significantly curtail government spending in an effort to control public-sector debt, ...
RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Global Recession

    An extended period of economic decline around the world. The ...
  3. The Great Recession

    The steep decline in economic activity during the late 2000s, ...
  4. Economic Exposure

    A type of foreign exchange exposure caused by the effect of unexpected ...
  5. Appraisal Management Company - AMC

    An independent entity through which mortgage lenders order residential ...
  6. Heckscher-Ohlin Model

    An economic theory that states that countries export what they ...
comments powered by Disqus
Related Articles
  1. Industries That Thrive On Recession
    Economics

    Industries That Thrive On Recession

  2. A Primer On Reserve Currencies
    Economics

    A Primer On Reserve Currencies

  3. The Danger Of A 401(k) Flameout
    Savings

    The Danger Of A 401(k) Flameout

  4. Top 6 U.S. Government Financial Bailouts
    Insurance

    Top 6 U.S. Government Financial Bailouts

  5. A Review Of Past Recessions
    Insurance

    A Review Of Past Recessions

Trading Center