In the Free Banking Era , from 1791 to the Civil War, even banks issued their own currency. The states and colonies issued money at various times in their history, from their founding, but was stopped in the 1860s.Here s a pretty good history of American money:In our society today, money s value is measured by what it can buy--its purchasing power--not by its material worth, but it hasn t always been so. American currency has spanned centuries of evolution and numerous transfigurations to reach the size and shape that we carry in our wallets today. It has been an evolutionary process which often came about in times of crisis--like the Civil War or Great Depression--or to respond to demand as society struggled to put into place a monetary system that would function smoothly and inspire confidence. This development process is ongoing and continues even now as redesigned currency is issued in 1996. But the legacy of the process is a rich heritage of United States currency that gives us a fascinating, colorful, and reflective glimpse into the growth of our nation.The Federal Reserve Bank has a special interest in this subject. As part of our role as the government s central bank we are responsible for putting currency, as well as coin, into circulation. Indeed, the warehousing, shipping, processing, and handling of currency are major functions of the regional Reserve banks.Colonial and Continental CurrencyThe Massachusetts Bay Colony issued the first paper money in the colonies in 1690. Other colonies soon followed suit to meet the high demand for money fueled by trade between the colonies and the scarcity of coin (which was the common form of money up to this date). Some of this early money was readily accepted, but some was not redeemed in gold or silver as promised and thus depreciated rapidly. These currencies, however, set a precedent for the first national currency which was issued during the War for Independence.To finance the Revolutionary War, the Continental Congress in 1775 authorized the limited issuance of paper currency. These notes, called Continentals, were denominated in dollars and backed by the anticipation of future tax revenues, with no backing in silver or gold. They could be redeemed only upon the independence of the colonies.Continentals were an interesting expression of the new nation s sovereignty, as they did not feature pictures of the crown or King of England. In fact, some were printed from plates engraved by Paul Revere to read The United Colonies and bore pictures of colonial minutemen.Without solid backing and with rising inflation, the Continentals soon became worthless, thus the expression not worth a Continental. Or, as George Washington put it, A wagonload of currency will hardly purchase a wagonload of provisions. In 1777 after the Declaration of Independence was signed, the first notes bearing the words The United States were issued and signed by well-known revolutionary figures to give them credibility.The remnant of this experience was a deep distrust of paper money which was not issued again by the federal authorities until the Civil War when the Federal government first issued paper money. The Continental was significant, however, in that it marked the first time that the worth of U.S. currency lay in its purchasing power and not in its intrinsic value.Free Banking EraIn 1791 the Bank of the United States received a charter to operate until 1811, followed by the Second Bank of the United States from 1816 to 1836. These two banks, chartered by Congress rather than a state, performed several central bank functions. Although privately owned, they were authorized to issue paper bank notes and serve as the fiscal agent of the government. Both banks, however, were unpopular with those wanting easy credit--primarily the western, agrarian interests--and in 1832 Andrew Jackson vetoed the recharter of the Second Bank.Thus followed the Free Banking Era --a quarter century in which American banking was a hodgepodge of state-chartered banks with no federal regulation or uniformity in operating laws. State Bank notes of various sizes, shapes, and designs were in circulation. Some of them were relatively safe and exchanged for par value and others were relatively worthless as speculators and counterfeiters flourished. By 1860, an estimated 8,000 different state banks were circulating wildcat or broken bank notes in denominations from ? cent to $20,000. The nickname wildcat referred to banks in mountainous and other remote regions that were said to be more accessible to wildcats than customers, making it difficult for people to redeem these notes. The broken bank notes took their name from the frequency with which some of the banks failed, or went broke.Civil WarOnce again the need to finance a war provided the impetus for a change in the monetary system. In 1861, to finance the Civil War, Congress authorized Demand Notes--the first i
The Us Govertment was strapped for cash or hard coin also known as specie during the Civil War and started to print what was called Green Backs because they had green backs. One of the reasons for the paper money was that it was easier to pay the thousands of soliders in the fired. Paper is a lot easier to handle then heavy coins. They were silver certificates and some were gold. That meant that the paper money could be exchanged for gold or silver at any federal bank. We went off the silver and gold standard during WWII. We no longer had the hard silver or gold to back what was in circulation. States did not print money they authorized banks to issue bank certificates that could be used for a medium of exchange. It did not work well because many banks out of state would not recoganize the certificate.
You might benefit from knowing that there are at least two kinds of paper money : backed and fiat.Backed currency has an equivalent amount of something like gold or silver stashed away somewhere. The old gold or silver certificate bills, from like before 1965, could in theory be exchanged for gold or silver. fiat notes have no backing, except the likelyhood that tomorrow someone will accept it as having value.
Here s a brief history:http://www.ronscurrency.com/rhist.htm
