A History of American Currency - Coursework Example

A History of American Currency The development of American history has been related with the various military and political events that took place since the first establishment of the nation and especially the achievement of its independency from England, the so-called mother-country. Moreover, it should be noticed that the structure of the economy of America has been influenced by the economy of the natives, Indians, but also the economy of England; through the years, America developed its own financial principles and its own currency – which combined the characteristics of other existed currencies, as explained below. The specific paper focuses on the presentation of the history of currency in America for the years 1000 up to 1877; however not sufficient information exists for the whole period mentioned above. More specifically, America is a continent the history of which is clearly known only after a particular point of time: the establishment of the first colonies in various regions across the continent. Before the specific period of time just a few hypotheses can be made regarding the currency (referring to the various ‘means’ of exchanging goods of a specific value) used by natives, especially Indians in their daily transactions. After the entrance of people from Europe (especially English but also Spanish and French) in America, a specific monetary system began to be created in the continent; this system had many of the characteristics of the one used previously by Indians while several changes were made (in accordance with the economy of the colonists involved) in order for the various transactions with the mother – country to be completed successfully. The reference specifically to England when describing the monetary history of America is unavoidable; the specific country represented the majority of people that entered America and for this reason the monetary system of England has been considered to be the basis for the American economy – although it was rather a gradual development. As for natives (Indians or Amerindians) they gradually lost their right to intervene in the financial development of their region and had to be adapted to the new monetary standards implemented by colonists. In this context, the monetary history of America (referring to the currency in its form that is similar with its current one) could be regarded as beginning in the 17th century. Regarding this issue, it is noticed by Delage et al. (1993, 141) that ‘in the years that followed 1650 the Amerindians found themselves losing control of their own currency; the introduction of a false or imitation currency (multicoloured glass beads) forced out the true currency (wampum made of shell beads); beaver pelts became the exchange standard because of the fur trade, and the value of beaver pelts was fixed on the European market’. In accordance with the above, the introduction of the Western (referring to Europe) monetary system in America faced severe barriers because of the particular characteristics of trade exchanges between the continent and the various European countries; English currency, the pound, was primarily introduced in order to support the completion of the various trade exchanges; however soon the pound was found to be inadequate – mostly because of the differences in value of the goods exchanged (the colonists aiming at their independency from the mother country had created their own systems of measuring value while different value was given to various products exchanged between America and England. However, the governance of England over the American economy (influencing the country’s currency) was difficult to be achieved. Towards this direction, it is supported by Nettels (1934, 15) that ‘the acquisition of Jamaica by England in 1655 proved to be an important factor in her economic expansion; for this once insignificant island became the center from which English merchants carried on a much desired trade with Spanish America’. In other words, English traders were not limited in specific regions of the American continent; rather they kept on developing commercial transactions with communities (both of natives but also of colonists) across American. It is approximately at that period, 1695, that Americans started to use two specific types of money ‘one consisted of hammered pieces that were irregular in size and weight; the other of milled coins that were practically uniform and designed so as to prevent mutilation’ (Nettels, 1934, 163). Under these terms, the development of a common currency for the greater American region was considered as necessary; however through the years each one of the countries of the continent developed its own financial principles and its currency – separately from the rules already applied for currency exchange and evaluation in the country (UK). In fact, it could be stated that the most important period for the monetary development of America are the years between 1650 and 1750. It is during these years that the control of England over its colonies (from a financial aspect) started to present several weaknesses; in the long term these weaknesses led to the lost of the financial control of England over its colonies (including America); at a next level the colonies developed their own monetary system responding best to their needs and their interests. The specific issue was examined by Nettels (1934, 179-181) who found that up to 1715 ‘the colonies had a common standard of value, it was that of English silver currency; during the period discussed, silver was minted in England at the rate of 5s. 2d. an ounce; the colonists kept most of their accounts in pounds, shillings, and pence; and moreover, in foreign trade, they exchanged commodities priced in sterling value’. However, the continuation of the pound as a monetary unit in America was proved to be ineffective; no comparison could be made regarding the value of products bought by the European countries. For this reason, the development of a particular American currency was considered as absolutely necessary – by all the administrators (political and financial) of England’s colonies around the world. On the other hand, it should be noticed that the dollar was not the first banknote used across America. More specifically, the research of Bodenhorn (1993) led to the conclusion that ‘long before the first commercial bank was chartered in the United States, Americans had a long and relatively successful experience with small-denomination notes; an unfavorable balance of payments and Britains limitations in specie exports, even to the colonies, created a chronic shortage of small silver; small-denomination notes were the obvious response’ (Bodenhorn, 1993, 812). The development of currency in America followed many stages; apart from the gold, the silver or the various commodities (valued in sterling) other types of ‘currency’ (as the specific noun can be related with all financial transactions) were gradually developed by the financial administrators (at a primary stage) of that specific period. The specific issue can be made clear through the Appendix II in which all the stages in the monetary history of USA are analytically presented. In accordance with a report published in Currency History (online article, 2008) ‘in 1739 Benjamin Franklins printing firm in Philadelphia printed colonial notes with nature prints---unique raised impressions of patterns cast from actual leaves; this process added an innovative and effective counterfeit deterrent to notes, not completely understood until centuries later’. The above initiative had led England to ban every relevant activity (money printing) by its colonies – in 1764. The development of contradictions between America and England led soon in a severe military conflict that resulted to the independence of America. The years that followed 1750 the need for the development of a currency that would represent the characteristics and the values of the continent was emergent. The establishment of the dollar as the main currency of America (other currencies have been adopted by the countries of the Latin America) was completed in 1792. Gold continued to be used in the daily commercial transactions across USA. Silver also remained in the market but many differentiations took place regarding its value towards the gold but also towards the dollar. The discovery of significant amounts of gold in the decades of 1840 and 1850 led to an increase of the value of gold towards its competitors in the market (referring to silver but also to the dollar). An important feature regarding the monetary history of America, especially that of USA, has been the introduction of greenbacks in 1862. Regarding this issue it is noticed that ‘the greenback, a fiat paper currency created by the Legal Tender Acts of 1862 and 1863, swiftly filled the channels of trade, serving both as a bank reserve arid as a hand-to-hand currency; in December 1861, the banks suspended paying specie (gold or silver) for notes and deposits’ (Greenfield et al., 1995, 1086). The specific issue, appearance and use of greenbacks, was also examined by Goodwyn (1978). The above researcher stated that ‘in the first year of the war (1861) the government had contracted with commercial banks for a number of war loans that had the effect of substantially increasing the currency and thus the pressure on gold reserves’ (Goodwyn, 1978, 10). In other words, greenbacks were introduced by the American government in order to serve specific political targets; in the long term the specific currency was replaced; its redundancy was made necessary as the political and social conditions in USA could not any more justify the existence of the specific type of currency in the daily financial transactions; a new currency should be established in order to support the financial development of the country (USA). The above assumption is also supported in a relevant article published by CSA notes (2001) where it is made clear that ‘after the Civil War broke out in 1861, the newly established Confederate government began to issue its own money as legal tender to the citizens of the South; the 1st note from the Government of the Confederate States of America was issued in April of 1861; from then on, notes were issued on through 1864’ (CSA notes, 2001, online article). However, through the years, the need for more effective exchange tools was necessary; for this reason the establishment of the dollar as the dominant currency of USA should be considered as unavoidable. Moreover, it is noticed by Goodwyn (1978, 16) that ‘in the early 1870s, a currency bill had been introduced that, in one of its less debated features, quietly dropped the silver dollar from the nations coinage’. The appearance of dollar as a banknote - that followed soon - was an expected consequence of the inconsistency in the policies followed by the USA government up to then regarding the development of an effective monetary strategy. Works Cited Bodenhorn, H. (1993) Small-Denomination Banknotes in Antebellum America. Journal of Money, Credit & Banking, 25(4): 812-823 CSA notes (2001) online article, available at http://www.csanotes.com/ Currency history (2006) online article, available at http://currency-history.blogspot.com/ Delage, D., Brierley, J. (1993) Bitter Feast: Amerindians and Europeans in Northeastern North America, 1600-64. Vancouver: UBC Press Goodwyn, L. (1978) The Populist Moment: A Short History of the Agrarian Revolt in America. Oxford: Oxford University Press Greenfield, R., Rockoff, H. (1995) Gresham’s Law in Nineteenth Century America. Journal of Money, Credit & Banking, 27(4): 1086-1095 Nettels, C. (1934) The Money Supply of the American Colonies before 1720. Madison: University of Wisconsin Appendix Appendix I Development of currency in USA for the years 1690 – 1878 (source: http://www.ronscurrency.com/rhist.htm, 2001, accessed: 2/5/2008) 1690 Colonial Notes The Massachusetts Bay Colony issued the first paper money in the colonies which would later form the United States. 1775 Continental Currency American colonists issued paper currency for the Continental Congress to finance the Revolutionary War. The notes were backed by the "anticipation" of tax revenues. Without solid backing and easily counterfeited, the notes quickly became devalued, giving rise to the phrase "not worth a Continental." 1781 Nations First Bank Also to support the Revolutionary War, the continental Congress chartered the Bank of North America in Philadelphia as the nations first "real" bank. 1785 The Dollar The Continental Congress determined that the official monetary system would be based on the dollar, but the first coin representing the start of this system would not be struck for several years. 1791 First U.S. Bank After adoption of the Constitution in 1789, Congress chartered the First Bank of the United States untill 1811 and authorized it to issue paper bank notes to eliminate confusion and simplify trade. The bank served as the U.S. Treasurys fiscal agent, thus performing the first central bank functions. 1792 Monetary System The federal monetary system was established with the creation of the U.S. Mint in Philadelphia. The first American coins were struck in 1793. 1816 Second U.S. Bank The second Bank of the United States was chartered for 20 years until 1836. 1836 State Bank Notes With minimum regulation, a proliferation of 1,600 local state-chartered, private banks now issued paper money. State bank notes, with over 30,000 varieties of color and design, were easily counterfeited. That, along with bank failures, caused confusion and circulation problems. 1861 Civil War On the brink of bankruptcy and pressed to finance the Civil War, Congress authorized the United States Treasury to issue paper money for the first time in the form of non-interest bearing Treasury Notes called Demand Notes. 1862 Greenbacks Demand Notes were replaced by United States Notes. Commonly called "Greenbacks," they were last issued in 1971. The Secretary of the Treasury was empowered by Congress to have notes engraved and printed, which was done by private banknote companies. 1863 The Design The design of U.S. currency incorporated a Treasury seal, the fine line engraving necessary for the difficult-to-counterfeit itaglio printing, intricate geometric lathe work patterns, and distinctive linen paper with embedded red and blue fibers. 1865 Gold Certificates Gold Certificates were issued by the Department of the Treasury against gold coin and buillion deposits and were circulated until 1933. 1865 Secret Service The Department of the Treasury established the United States Secret Service to control counterfeits, at that time amounting to one-third of circulated currency. 1866 National Bank Notes National Bank Notes, backed by U.S. government securities, became predominant. By this time, 75 percent of bank deposits were held by nationally chartered banks. As State Bank Notes were replaced, the value of currency stabilized for a time. 1877 Bureau of Engraving and Printing The Department of the Treasurys bureau of Engraving and Printing started printing all U.S. currency, although other steps were done outside. 1878 Silver Certificates The Department of the Treasury was authorized to issue Silver Certificates in exchange for silver dollars. The last issue was in the Series of 1957. Appendix II Representation of history of money in America (source: http://www.pbs.org/newshour/on2/money/history.html, 2005, accessed: 2/5/2008) Read More