What is Continentals
Continentals were a form of paper currency used in the United States during the time of the American Revolutionary War, which occurred from 1775 to 1783. The paper money issued from 1775 to 1779 helped to finance the cost of the war. The currency quickly lost value because it did not have backing by a physical asset such as gold or silver. This lack of backing led to the term "Not worth a Continental."
BREAKING DOWN Continentals
Revolutionaries in the New World colonies floated continentals due to not having the funding to carry out a prolonged battle against the British crown. In 1775, the Continental Congress issued $2 million in paper bills of credit. The paper notes represented the colonies’ first significant currency distribution and bore the images of Revolutionary soldiers.
Continental currency carried one significant flaw because the money was backed not by any real asset. Instead, the Congress promised future tax revenues as the basis for the currency. The Revolutionaries continued printing money and ultimately issued more than $200 million in rebel currency. Within five years, continentals suffered significant depreciation and eventually were practically worthless.
To contribute to the devaluation of the continentals, the British produced enormous quantities of counterfeit bills to sabotage the American economy. Afterward, the colonies held considerable debt from the war.
Congress stopped issuing continentals in 1779. By 1785, the continental currency was so remarkably worthless people just stopped accepting the bills as payment for goods or trades. Economic upset plagued the early U.S., and leaders of the young nation faced the challenges of paying back war debts. The leaders also had to establish the first financial institutions in an attempt to reduce inflation and restore the value of the nation's money.
To stabilize the economy and correct the country’s financial troubles, Alexander Hamilton proposed an idea for a national bank. The national bank would issue paper money and handle the government’s tax revenues and debts, among other functions. His idea came to fruition as the Bank of the United States, which opened in Philadelphia in December 1791.
The creation of the national bank led to the adoption of the U.S. dollar during the following year. The invention of the U.S. Mint, the federal monetary system, and the U.S. Coinage Act of 1792 all quickly replaced the paper continentals. These systems have since evolved to become the nation’s contemporary money system, still in use today. Although the country adopted the U.S. dollar, it circulated only as coins and did not return to using paper currency until 1861.