Have you ever wondered where the America Dollar came from? Well, the story begins in 1519, when the Bohemian Count Hieronymos Schlick discovered a rich vein of silver near his estate and decided to mint his own coins. Named after the valley where they were mined, these Jaochimsthalers (or thalers for short) became so popular around the world that the word became synonymous with any big silver coin, from the Italian tallero to the Ethiopian talari to the American dollar.
But why would the United States, an English colony, use dollars instead of the currency of its motherland: pounds and shillings? Well, during the 1700s, London was intent on keeping as much gold and silver in the country as possible. They actually outlawed the export of their currency, even to their own colonies. That meant that American colonists had to rely on silver dollars from other countries, and the most plentiful supply came from Mexico. Just south of the border, Spain was producing vast amounts of silver coins at the Casa de Moneda de Mexico, still operating today as the oldest mint in the Americas. Officially called pesos, these silver coins were worth eight reals, which is why you might have heard pirates call them “pieces of eight.” But to the American colonists, they were simply dollars. Still, coinage in the colonies was hard to come by. What little there was went to Europe to pay for imported goods, and it rarely came back. In 1729, a young printer saw how a lack of currency in Philadelphia was stifling the local economy, prompting him to write an anonymous pamphlet called *A Modest Enquiry into the Necessity of a Paper Currency*. This was the same man responsible for many famous financial quotes like “Time is money” and “nothing is certain but death and taxes”, which was Benjamin Franklin.
Franklin’s advocacy of paper currency earned him contracts for printing money for the Pennsylvania colony, but the English crown saw this as a threat to its authority. By 1764, the British Parliament had outlawed the use of paper money in America, just one of many stubborn decisions that would eventually provoke the colonies into rebellion. However, you need cash to finance a Revolution, so the newly formed Continental Congress authorized the printing of millions of dollars of Continental Currency. Originally, these “continentals” were valued at one-to-one Spanish dollar, but as more and more were printed, their value fell dramatically. If you’ve ever heard the saying, “Not worth a continental,” that’s where it came from. Though the American Revolution became the first war financed and won with paper money, the American people felt totally burned. The Founding Fathers decided to avoid the controversy altogether by not mentioning paper money in the Constitution at all, and it would be almost a hundred years before the federal government would print money again.
With the Coinage Act of 1792, the United States officially made the dollar the national currency. At this point, the dollar was backed with the Bimetallic Standard, meaning that holders could exchange their dollars for either gold or silver. Instead of the confusing British system of pounds, shillings, pence, and farthings, the dollar would be neatly divided into 100 equal parts, which Thomas Jefferson suggested they call “cents” after the Latin for “100.” Thus, the American dollar became the first fully decimal currency in the world, and the new coins were struck in the first federal building in America: the U.S. Mint in Philadelphia.
The same dollars printed to finance the American Revolution were used until 1861, when we started printing money again to finance the Union Army in the Civil War, under the authorization of Abraham Lincoln’s administration. This not only was the introduction of the first American one-dollar bill but was also the first American dollar that included the face of a person. This person was Salmon P. Chase, Lincoln’s Secretary of Treasury. The Treasury printed over $400 million worth of paper notes, which came to be known as “greenbacks”. Seeking to raise revenue for the war effort without exhausting its reserves of gold and silver, the United States federal government suspended the payments made in gold and silver in redemption of currency notes. As with Continental Currency, greenbacks depreciated as more were printed, at one point only worth one-third their face value. As bad as that sounds, it was a lot worse in the South. The Confederacy printed more than twice as many of their Confederate State Dollars. The value dropped so precipitously that by 1865, a ten-dollar Confederate note would only get you one or two cents worth of goods. Incidentally, this bill printed in Louisiana was commonly known as a Dixie, thanks to the French word for “ten.” Some people think that’s how the area around New Orleans got the moniker “Dixieland,” and how the South generally came to be known as “the land of Dixie.”
As mentioned earlier, neither Dixies nor greenbacks could be exchanged for gold and silver. Their value was based on the promise that the government would redeem them once their side won the war. With the North’s decisive victory, Confederate dollars were suddenly useless scraps of paper, while greenbacks became the main currency. Controversy ensued as debate arose over how these new dollars should be backed, which led to the Resumption Act of 1875 stating that paper money could be converted to gold. But the greenback became such a trusted standard that most people didn’t even bother redeeming them, and America finally became a land of federally regulated paper money.
The next great leap forward for the dollar would be thanks to another war. World War Two was perhaps the most expensive war in history. Economically, it was totally unsustainable, with the US racking up enormous trade surpluses and every other country involved sinking into massive debt. But the world had learned from World War One and as World War Two slowed down, many of the major powers met to work out the first real international monetary agreement, which become the famous Bretton Woods System. Following the first World War, Britain had owed the US a huge pile of money, which they couldn’t pay back unless France paid them a huge pile of money it owed them. But much of the war had occurred on French soil, and the French couldn’t afford to pay back the British unless they basically made the defeated Germans pay for everything. This of course had all been a disaster that caused huge financial and political instability. So, this time around, things would be different. Reparations would be minimized, repayment of reparations would be on gentler terms, and that whole problem of wildly unstable currency caused by countries like Germany no longer being able to adhere to the Gold Standard after World War One would be solved. At this point in history, the US basically had everybody’s gold, because everybody had bought a ton of stuff from the US for the two biggest wars in history. So, the US actually was still on the Gold Standard, making the solution simple: Peg everybody else’s currency to the US dollar. And so, every country had to keep some Dollars on hand to redeem their currency, which is how the US dollar became the reserve currency for basically the entire world.
Throughout the 20th century, the connection between gold and the dollar got weaker and weaker, until it was finally severed by the Nixon Administration in 1971. The US dollar is now a fiat currency, meaning its value is based only on the people’s faith in their government. Essentially this means the US government has the power to inflate or deflate it at what any rate they would like. As I would imagine, many in this community are not too keen on the dollar and imagine a future where it is expelled or backed by another store of value with an attractive Stock to Flow ratio, such as Bitcoin. One thing I think we can all agree on though is that no monetary system has proven to work forever, so it will be interesting to see what the future has in store for the dollar.
Sources: [History of US Dollar](https://youtu.be/ppO_wdEsghc) and [The History of Paper Money](https://youtu.be/GNo7MDN5-0g)
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