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A brief summary of


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
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."


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

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,

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Continental currency



Colonial paper currency

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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
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.


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.

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

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.


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

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,

National bank note (old size)

891 uz20.:
1-'J;nt:H,\I. H1:.~EHY1: 11 \\ i.

'41fa ~ ~)'. I J :i rfdt'Z·
, 1 " \ ·1n,.,.


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.

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

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.