Full text of A Brief Summary of Coins and Currency
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AND A brief summary of COINS AND CURRENCY prepared b y Fede ral Re serv e Bank of New York The story of money dates back almost as far as man himself. It began when man learned that he need not produce for himself everything that he needed or de ired, that he could trade things he had for thing he wanted. Difficulties were met, however, becau e there wa, no common tandard of value. A fisherman, for example, couldn't get much wheat from a farmer who didn't like fish. Before long man learned to set up a prized ornament or a long-lasting item of food as a tandard to which all other things were compared. These standards - beads, shells, stones, furs, fish hooks, grain and cattle, to name a few - all have been given a turn as money from time to time. Money, then, .should be a generally acceptable medium of exchange. When mankind learned that money wa u ually more generally acceptable if it was durable and easy to carry, metal money began to gain favor. Our earliest record of this type of money date back to 2,500 B.C., when the Egyptians produced rings that were used for exchange. Cubes of gold became money in China about 400 years later. The first metal coins were made in Asia Minor, about 700 B.C., by the Lydians. These coins, struck from an alloy of gold and silver called electrum, were bean-shaped and were stamped with rough impressions. The Greeks and Romans contributed much to the art of coinage. Some of the most beautiful coins ever produced were made by the Greeks during their Golden Age - 400 to 300 B.C. As time went on, coins b~came the favored medium of exchange the world over. The origins of paper money probably go back to the clay tablets of Babylon about 2,500 B.C. On these tablets were written due bills, receipts and the like. Marco Polo, returning from his 13th century voyage to China, reported that paper money was in use there. He also reported that Emperor Kubla Khan, in 1273 A.D., issued notes printed on mulberry bark paper, bearing the red seal of Kubla and the signatures of his treasurers. The earliest specimen of paper money known to exist today is the Kwan, a Chinese note issued during the Ming Dynasty (1368-1399 A.D.). The Kwan is about the size of a sheet of typewriter paper. In the Middle Ages when travel became more common, metal coins were looked upon by many as a burden, for they were too heavy to carry from place to place. Then, too, travelers were always easy prey to robbers. Tho e who traveled began to leave their coins with a goldsmith. In turn the traveler received a receipt which was of no value to a robber. This custom grew in popularity and gradually the receipts were transferred from one person to another in payment of debts, instead of withdrawing the actual coin. In effect, this was paper money at work. When the early colonial settlers departed for North America, they left behind them a well-devel3 oped coinage sy. tern. The few foreign corns that the coloni. ts brought with them were used to pay for European trade. In their new homeland they soon found themselve" engaged in primitive barter or using Indian wampum as money. A group of 8ettlers soon learned to counterfeit wampum, however, and it lost its value. For home trade, then, the product mo t widely used in an area became money. For example, in Virginia it was tobacco and in Massachu etts it was grain, fish, and furs. Throughout all of the Colonies gun powder and bullets were frequently used for small payments. After trade with the West Indies was developed, Spanish eight-reales pieces were widely circulated. These coins, known as pieces of eight, became ~tandard money and remained in circulation with official sanction until 1857. To meet the need for small change, colonists frequently cut these "Spanish dollars" into fractional parts. A half section of the dollar therefore became "four bits" - a quarter section was "two bits." 4 Wampum Pine Tree Shilling Spanish piece of eight The men of the Ma sachusetts colony were the first to attempt their own coinage in British America. In 1652 a mint was opened in Boston where the pine tree shilling, o named because it bore the impression of a pine tree, wa minted. Sixpence and threepence pieces were also products of thi mint, which was closed by the English Government in 1686. During the time following the Declaration of Independence and up to the adoption of the Constitution, a number of State legislatures authorized the is uance of coins. The first attempt of any significance on a national basis, however, came in 1787, when James Jarvis was engaged by the national Congress to make copper one-cent coins. On one side of this coin the de ign consisted of a circular chain of 13 links enclosing the motto We Are One. On the other side was a dial with the hours of the day marked on it. Above the dial was the noonday sun, and beside it the word f ugio, the whole ignifying "time flies." Below the dial was the phrase Mind Your Bnsiness - an admonition to diligence, not the caustic expression of today. Becau e these expressions were suggestive of the spirit of Poor Richard, it became known as the Franklin cent, although Benjamin Franklin is not known to have had anything to do with the coin. New York State in 1787 issued a coin that wa~ known as the Excelsior cent and bore a design resembling the Great Seal of the State. After the adoption of the Constitution, Congress established a United States mint in Philadelphia in 1792, and the nation's first cents and half-cents were struck in 1793. They were copper and about the size of present-day quarters and nickels. A silver half-dime, half-dollar, and dollar were added in 1794, and the next year the eagle ($10 gold coin) and half-eagle appeared. At that time the eagle wa the gold and the dollar the silver monetary unit. The motto E Pluribus Unum was first used on the 5 half-eagle of 1795. The next year our first quarters and dimes were issued. In 1690, men from Massachusetts returned, tired and beaten, from an unsuccessful siege of Quebec. Booty from the anticipated victory, it was thought, would finance the expedition. Tables were turned, however, and debts for ships, cannons, muskets, powder, and shot mounted. And then there were hundreds of hungry soldiers, threatening mutiny if not fed and paid. All this was met with a nearly empty treasury. Out of this dire need, Bills of Credit ( in effect mere promissory notes) - the first paper money in America and in the entire British Empire - were issued by the colony. Other colonies followed by printing paper money of their own. It circulated freely and notes were even torn into pieces to substitute for coins in making change. Issues were excessive, however, and some of them quickly sank to small fractions of the intended value. Despite the disadvantages, however, 6 ~ ~~9:i'f&!Jli~~~~l t /1 ~rt!J Dolra • IL ~~M;:e*-:.;.:,,-;r, TnrR,r .\1111.u, •1)lf ~P 'sJ ) - lt t ••t++ ♦♦ +t+ •+> ♦ +++t+ ~ q. ~; l ♦ Continental currency • -~ Colonial paper currency ,. ~~~~~ ij'0 ,",g1,m ill Ntw-JrR td, hy ltA.A._C C:041.lto'., State bank note ♦ early colonial paper money seem to have helped to solve some of the difficulties caused by a _hortage of metallic money in an expanding community. Then came the American Revolution and huge expenses with no adequate power of taxation. The Continental Congress, in June of 1775, authorized the first issue of paper money, to be limited to $2 million. Soon, however, everal other is ues were put out and the total in circulation greatly exceeeded all rea onable need . Rapid depreciation of value resulted. George Washington, in commenting on the condition , said, "a wagon-load of money will scarcely purcha ea wagon-load of provisions." The vanishing value of the currency of the Continental Congress led to the term for worthlessness that has remained to this day - "not worth a continental." Congress in 1790 authorized the Treasury to accept the continental notes at a rate of 100 to 1, in payment for bonds of the new Federal Government. So bitter wa the feeling toward paper money that a provi ion giving Congress the right "to emit bill on the credit of the United States" was struck out of the first draft of the Federal Con titution, and the Constitution a adopted carried a provision forbidding the tate to "emit bilL of credit." Not until more than 70 years later. in 1862, was paper money agam i sued by the Government of the United State . . Between 1790 and the Civil War no paper currency was issued by the Government. On several occasion (1812-15. 1837-43, 1846-47, 1857, 1860-61) connected with war and depressions, the Treasury issued small amount of note , almost always intere t-bearing, in denominations ranging down to $50. Some of these notes appear to have had some limited u e a circulating currency, but at no time was there much in circulation, and of course they were not intended to serve as currency. 7 Until 1836 the larger part of paper currency in circulation consi ted of issues of the first (17911811) and the second (1816-1836) Bank of the United State , a private Federal-chartered bank. At the time of closing in 1836 the Bank of the United State had outstanding note liabilities of $23,100,000. Afterward, notes issued by State-chartered private banks were the chief form of paper currency. These note had varying degrees of acceptability, were not always redeemable in gold or silver on demand, and the issues of many banks frequently circulated at a substantial discount from face value. Each bank chose its own de ign for its notes, and they differed in size, color, and appearance. By 1860, it is e timated, there were notes of 8 000 banks in circulation. Under the e circum' ~tance , it i not trange that counterfeiting fluori hed a never before or (fortunately) since. Bank failures were common throughout the period and people regularly suffered losses on the notes they received and held. 8 change from hand press to steam-operated coining press. silver dollar has figure of Liberty seated, -cl design used on all silver coins thereafter (e~ cept for silver dollars) until 1891. = = = = = = ~~Jl Congress authorized coinage of a double eag ($20 gold piece) and a gold dollar. ====:;;:~;' With the discovery of gold in California, an a need for acceptable money there, some p vote firms began minting their own gold coin minting of silver three-cent pieces of alrriO paper thinness; soon dropped as impractic,l coinage of three-dollar gold piece. establishment of San Francisco mint. Flying eagle cent, made of copper and nicko circulation of foreign coins prohibited; the Spanish silver dollar ceased to be legal tender SIGNIFICANT LATER DATES IN THE HISTORY OF OUR COINAGE first Indian head cent. establishment of Denver mint. bronze two-cent piece, the first coin to use the moto In God We Trust. first "portrait coin," the Lincoln cent. first buffalo nickel. three-cent piece of nickel, discontinued 1890. first minting of Liberty (full-length) half-dollar. first nickel five-cent piece (there were earlier silver half-dimes). first minting of present Liberty head silver dollar. coinage of trade dollars, slightly larger than standard silver dollars, intended for use in the China trade where they "competed" with the Mexican peso. Withdrawn from circulation in 1887 because they did not help Far East trade, but tended to circulate at home. Washington quarter. Jefferson nickel. silver (35%) "nickel" produced to save nickel, discontinued 1945. coinage of 20-cent piece, discontinued 1878. first Liberty head nickels, almost immediately withdrawn because the reverse bore only a Roman letter V and counterfeiters plated them thinly with gold to pass them cff as fivedollar coins. The next issue of the coin read "V cents." •• Zinc-coated steel cent produced to save strategic copper and tin (only year minted). • , • Roosevelt dime. Franklin half-dollar. 9 The fir t paper money actually issued by the Government of the United State con i ted of nonintere t-bearing Treasury notes issued in 1861 and 1862. The~e note were payable on demand at certain designated uh-treasuries, and soon became known as demand notes. The amount fir t authorized wa $50 million but a second issue of $10 million was also paid out. In 1862, Congress provided for the is uance of United States notes, and they were ubstituted for the demand notes, which were retired. The United States notes were first issued in the amount of $150 million and were designated as legal tender for all debts, except duties on import and interest on the public debt. They were popularly referred to as "greenbacks" or "legal tenders." A second issue of $150 million was also authorized in 1862 and a third issue of the same amount in 1863. The highest amount outstanding at any one time was $449,338,902 in early 1864. By 1878 the amount outstanding had been reduced to $346,681,016, and this amount is still outstanding 10 today, mostly in denomi-nations of $2 and $5. It was also during the Civil War ( on January 3, 1862) that the Federal Government suspended specie payments - that is, dropped the provision for redeeming United States notes in coin. It was not until January 1, 1879 that specie payments were resumed. Following the suspension in 1862, subsidiary silver coins largely disappeared from circulation as they were hoarded. For a time their place was taken by tickets, due bills, and other forms of private obligations is ued by merchants and others whose business required them to make change. Congress then first authorized the use of postage stamps for change ( after people had begun to use them for this purpose), and later issued a modified stamp called postal currency. Finally, fractional paper currency was issued in denominations corresponding to the silver coins. Congress authorized an issue of $50 million, the highest amount outstanding at any one time was $49,102,660.27. These "paper coins," much smaller in ize than our present currency, were known a "shinplasters" and were issued in denominations of 3, 5, 10, 25, and 50 cents ( a small amount of a 15-cent denomination was also issued). After the end of the war, when coinage was resumed, this fractional currency was no longer needed, and in 1875 and 1876 Congress provided for its redemption and retirement. One of the most interesting of the few coins minted during the Civil War was the two-cent bronze piece, the first of our coins to bear the motto In God We Trust. The first gold certificates were authorized in 1863, when Congress directed the Secretary of the Treasury to receive deposits of gold coin and bullion and to issue certificates therefor in denominations of not less than $20. (Later certificates were issued in the $10 denomination also.) The first issue was made in 1865, and gold certificates continued in circulation until 1933. The Treasury was authorized to issue silver certificates in 1878; like the gold cer11 tifi ates, they were given out m return for the deposit of silver dollars with the Treasurer of the United States. In 1934 this authority was increased to authorize is uance of silver certificates equal in value to silver purcha ed by the Treasury. Before this latter date, however, the Congress in 1890 directed the Secretary of the Treasury to purcha. e each month $4,500,000 ounces of silver at the market price and to issue in payment "Treasury notes of the United States." These notes, usually called "Treasury notes of 1890," were redeemable on demand in either gold or silver coin at the discretion of the Secretary of the Treasury and were legal tender. The authority for purchase of silver in this manner was repealed in 1893. when almost $156 million of the notes were outstanding. Congress later provided for the cancellation and retirement of this issue. Most of the paper currency in circulation between the Civil War and the First World War, however, 12 National bank note (old size) 891 uz20.: 1-'J;nt:H,\I. H1:.~EHY1: 11 \\ i. '41fa ~ ~)'. I J :i rfdt'Z· , 1 " \ ·1n,.,. "'ti,·i';''iW,,;;;:i't'c's" Federal Reserve bank note (old size) These notes ore reproduced by special perm,ss,on of fhe Secretary of the Treasury; further reproduction, in whole or in part, is strictly prohibited. consisted of national bank notes. This currency, uniform in ize and general appearance, was issued by banks chartered under the National Bank Act of 1863, which provided that these banks were required to deliver to the Treasurer of the United States a certain amount (based on their capitalization) of registered Treasury bonds bearing the "circulation privilege." The banks were then entitled to receive from the Comptroller of the Currency paper money equal to 90 per cent of value of the bonds. The total amount of currency for all banks was limited to $300 million until 1870, when it wa increased; in 1875, the limitation was removed. By 1913, national bank notes amounting to almost $700 million were in circulation and the Treasury, of course, held bonds having the "circulation privilege" as backing. The last of these bonds matured in 1935 and national bank notes have since been retired from circulation as they are deposited in Federal Reserve Banks. The Treasury still keeps some cash in a special account to pay for these notes as they are presented. The Federal Reserve Act of 1913 authorized the issuance of Federal Reserve Bank notes against the deposit of United States bonds. These notes were, in effect, very much like the national bank notes. In 1918 Congre s authorized the issuance of Federal Reserve Bank notes in place of retired silver certificates, but by 1922 almo t all had been retired. In the banking emergency of 1933 and 1934, Congress once again authorized the issuance of Federal Reserve Bank notes secured by direct obligations of the United States or by eligible commercial paper. By the end of 1933 the value of these notes in circulation reached a peak of $208 million; they were retired over the next two years. During World War II a stock of unused Federal Reserve Bank notes was issued in order to save paper and labor that would have been used to produce other needed currency. These notes are being retired gradually. 13 By far the largest portion of paper currency in circulation today consists of Federal Reserve notes issued by the twelve Federal Reserve Banks. These notes are obligations of the United States and are first liens on all a sets of the issuing Federal Re erve Bank. Since 1933 they have been full legal tender for all debts, public and private. Each Federal Reserve Bank was originally required to maintain a re erve in gold of at least 40 per cent against its notes in actual circulation. In 1945 this requirement was reduced from 40 to 25 per cent, but in recent years all the Federal Re erve Banks have actually had gold reserves well in excess of the 25 per cent requirement. Federal Reserve notes, issued in denominations from $5 to $10,000, are furni hed to the Federal Reserve Banks through the Comptroller of the Currency, and under the supervision of the Board of Governors of the Federal Reserve System. They are made by the Bureau of Engraving and Printing, which also produces currency for the Treasury. A Federal Reserve Bank desiring to 14 African bronze ring Aztec gold images Alaskan bronze fishhook: Money is not always coins and paper currency: people throughout the world have used many curious materials in odd forms, from iron nails to huge stone slabs. obtain Federal Reserve notes applies for them to the Federal Reserve agent of it district (who is a representative of the Board of Governors) and ubmit collateral equal in value to the notes requested. This collateral can consist of eligible commercial paper, gold or gold certificates, and direct obligations of the United States. (New currency can al o be obtained in exchange for notes no longer fit for circulation.) No Federal Reserve Bank is permitted to pay out the notes issued by another Bank, and therefore notes of one Bank deposited in another Federal Reserve Bank are returned to the issuing Bank ( or to the Trea ury Department for final destruction by burning). The Federal Reserve Bank of issue is de ignated on a note by the round seal which appears to the left of the portrait on the face of the note. The full name of the Bank is given in the outer edge of the seal, and a large letter within also identifies the Bank (A for the Boston Reserve Bank, B for New York, C for Philadelphia, and so on to L for San Fran- cisco) . There is also a numerical identification about an inch in from each of the corners (1 for Boston, 2 for New York, and so on) . In addition to these Federal Reserve notes, the only other kinds of currency being issued today are United States note ( issued only in denominations of $2 and $5 and limited to an aggregate amount of .$346,681,016) and silver certificates (issued only in denominations of $1, $5, and $10). The chief distingui hing mark for the three types of notes is the color of the seal to the right of the portrait on the face of a note: the seal is green on Federal Reserve notes, red on United States notes, and blue on silver certificates. There is one other note series, but this "currency," consisting of gold certificates issued by the Treasury to the Federal Reserve Banks, does not circulate among the public. The certificates are issued in denominations of $100, $1,000, $10,000, and $100,000, and they represent pledges of the monetary gold stock of the United States. 15