After victory in the Revolutionary War of Independence the Constitution was written which was used as a guide to the creation of a central national Bank called the First Bank of the United States, the National Mint was authorized by the Coinage Act and the silver dollar was established as the unit of money and lawful tender in the United States of America.
Early American Currency History: Colonial Era
American Currency History: This short history of currency used by early Americans enables a better understanding of what was happening in the country in terms of money and why the First Bank of the United States was established.
During the Colonial Era there was no United States and therefore there was no United States currency and no central bank
Although there was no specific U.S. currency, forms of money were required as payment for goods and services and for the repayment of debts
Three types of money were used in the colonies of British America - Commodity money, paper money and specie (coins)
Commodity money: Commodities were articles of trade such as beaver skins, produce, tobacco and wampum (beads or shells used as money by Native American Indians)
Paper money: Printed paper used as a substitute for specie (coins)
Specie (coins): Specie were gold and silver coins. Specie is a form of visible wealth, and not merely representing it, as bills and notes do
American Currency History: Paper Money and Bills of Credit
American Currency History: During the Colonial era there was a shortage of gold and silver coins - the British failed to supply the colonies with enough coins and refused to allow the colonists to make money. Colonists had to barter (using commodity money). In 1690 the Massachusetts Bay Colony were the first to issue paper money as a response to the shortage of coins and in order to meet the high demand for trade. The paper money was in the form of Bills of Credit (also known as Bills of Exchange or Promissory Notes). These were signed documents, based as money on the credit of the colony, containing a written promise to pay a stated sum in gold or silver to a specified person at a specified date or on demand to pay debts.
American Currency History: The Revolutionary War
American Currency History: During the Revolutionary War, starting in 1795, the Continental Congress began issuing paper money known as Continental currency, or Continentals. And all of the first thirteen colonies, which would soon become independent states, also issued paper money to pay for military expenses. The paper money should have been backed by gold or silver, but not all of it was. Paper money rapidly depreciated, the famous phrase "Not worth a Continental" comes from this era.
American Currency History: The State Banks
American Currency History: The Revolutionary War had ended in victory but the nation had a substantial war debt which was also shared by the individual states. There was no common currency, so many states opened state banks and printed their own money.
American Currency History: The Constitution
The collapse of the Continentals prompted the delegates to the Constitutional Convention to include the gold and silver clause into the Constitution so that the individual states could not issue bills of credit, or "make any Thing but gold and silver Coin a Tender in Payment of Debts."
American Currency History: The National Mint - the First U.S. Coins and the Dollar
On April 30, 1789 George Washington became the first president of the United States of America. The National Mint was established and authorized by the Coinage Act of April 2, 1792. The purpose of the National Mint was to regulate the coinage of the United States. The purpose of the Coinage Act was to establish the silver dollar as the unit of money and lawful tender in the United States of America.
American Currency History: The First Bank of the United States
American Currency History: The federal government realized that all of the states needed to be united under a single financial system. The nation also needed a single line of currency to finance its war debts. The creation of a central bank to supervise and issue the currency would achieve these goals. Having a central bank and a standard American currency would help to improve trade. States were free to charter however many intrastate banks they wished. The First Bank of the United States, the National Bank, was not solely responsible for the nation's supply of bank notes. It was responsible for only 20% of the currency supply - the state banks accounted for the rest.
American Currency History
Additional articles have been provided detailing the History of American Currency including the Second Bank of the U.S., Henry Clay and the 'American System', the Panic of 1819, the Bank War and the Pet Banks and Wildcat Banks.