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. How did mercantilism affect the colonies of Great Britain?

    Read about the effects of British mercantilism on the economy and well-being of its imperial colonies, especially the American ... Read Answer >>
  2. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
  3. How can retail investors invest in commercial paper?

    Find out how individual retail investors can purchase short-term commercial paper, but why it rarely makes good investment ... Read Answer >>
  4. What burst the Mississippi bubble?

    In 1715, France was essentially insolvent as a nation. Even though taxes were raised to extremely high levels, the hole that ... Read Answer >>
  5. What are some examples of securities that can be found in a money market fund?

    Learn about examples of securities found in money market accounts. These securities need to be safe, liquid and of short-term ... Read Answer >>
  6. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ... Read Answer >>
Related Articles
  1. Investing

    Understanding the History of Money

    Money has been a part of human history for at least 3,000 years, evolving from bartering to banknotes.
  2. Investing

    2 Undervalued REITs To Add to Your Portfolio (AHP, CLNY)

    These two real estate bargains may offer potentially high total returns.
  3. Tech

    The History Of Money: From Barter To Banknotes

    Money has been a part of human history for at least 3,000 years. Learn how it evolved.
  4. Taxes

    Paying Uncle Sam: From Tobacco To $1 Trillion

    The services we rely on, like education, law and security, were built on taxes.
  5. Investing

    Amendment Creates Colony NorthStar (NSAM, NRF)

    With the three-company merger expected to close in January 2017, newly-formed Colony NorthStar will be guided by a new, smaller board.
  6. Personal Finance

    Best Places to Exchange Currency in Boston

    Since the nation’s first colonial currency was established in Revolutionary War-era Boston, the city’s currency exchange situation has come a long way.
  7. Small Business

    From The Printing Press To The Internet

    Find out how this invention contributed to the development and evolution of the U.S. economy.
  8. Trading

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  9. Investing

    5 Tales Of Out-Of-Control Inflation

    Hyperinflation can make a $1,000 bill look like chump change.
RELATED TERMS
  1. Mercantilism

    Mercantilism was the primary economic system of trade used from ...
  2. Continentals

    A form of paper currency used in the United States during the ...
  3. Paper Dealer

    A market maker that buys and sells extremely short-term corporate ...
  4. Paper Money

    A country's official, paper currency that is circulated for transaction-related ...
  5. Fine Paper

    High-quality securities that are assumed to be risk free, or ...
  6. Paper Trade

    Using simulated trading to practice buying and selling securities ...
Hot Definitions
  1. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  2. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  3. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  5. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
  6. Liability

    Liabilities are defined as a company's legal debts or obligations that arise during the course of business operations.
Trading Center