Long Live the Dollar

WORLD HISTORY | December 27, 2018

One hundred dollar bill/image from Wikipedia

The dollar has, through the course of history, almost completely lost its value. Soon there will be no dollar of any type left. Already, in most places, they prefer plastic over paper.

The dollar was put in place officially in the United States on September 8, 1786, by Continental Congress. Even before that, though, the roots of the dollar can be traced back to Bavaria in 1518, not in America. In Bavaria, a small town issued standardized silver coins taken from a nearby silver mine. These coins were called “thalers” which comes from the word “Thal,” meaning valley in German. The standard weight was 29.2 grams. Various countries in Europe recognized the value in having a standardized currency system in place and soon followed suit with the “thaler.” Even though different governments produced the coins from different mines and methodology, the coins were basically identical.

Spanish Silver Dollar/image from govmint.com

The Silver Dollar

The “Spanish Silver Dollar” came about as the New World was explored and Spanish explorers found rich mines in Mexico, which is where they produced the silver dollars. It was not long before it became the most common coin in the colonies even though there were still other silver dollars circulating. Even though it was more popular, silver dollars from the Old World still complicated transactions throughout America. As such, they began to search for just one currency to be the standard.

Continental Currency Note/image from worldbanknotescoins.com

Paper Notes

Before the American dollar was the official dollar, they used other means in order to finance their military efforts in Massachusetts. They used paper notes, which was so successful that the other colonies followed suit. The British, not being too happy about that, enacted restrictions on them. In 1775, Continental Congress chose to use this as their official standard even though it did not last very long because it was too easy to counterfeit. After the American Revolution, Congress, in 1785, made the decision to use the “Thaler” as the official currency. Instead of calling it the “Thaler,” though, they called it the “dollar.” A little lighter than the “Thaler,” the dollar weighed at 27 grams of silver.  

Closeup up first dollar bill/image from businessinsider.com

A few years later, “The Coinage Act of 1792” not only made the “dollar” the official currency but also was instrumental in the organization of other monetary units of gold, silver, and copper. The “penny” was born.

During 1861 and 1865, when the Civil War happened, a problem arose. America needed money to fight the war and there was only a limited supply of gold, silver, and copper, which is when they began printing green paper notes. In order to prevent counterfeiting, they had to put measures in place to try to stop it such as a Treasury seal and engraved signatures. By 1863, the banking system was implemented that gave the US Treasury the permission to control the issuing of National Bank notes. With this system, even though still being regulated, the banks were able to distribute money and buy US Bonds easier.    

Federal Reserve Building/image from businessinsider.com

Federal Reserve

The Federal Reserve Act of 1913 enacted the creation of one main bank with a national banking system. The purpose was to more readily be able to keep up with the nation’s financial needs that were constantly changing. The Board later created a currency called the Federal Reserve Note, the first one being a ten dollar bill in 1914. Design changes that were made included reducing the size by 30% and using the same designs on all denominations in order to keep costs down. It was not changed again until 1996 when further security measures were needed against counterfeiters.  

Graph showing the value of the dollar over time/image from Wikimedia Commons

The Value of the Dollar

When the 1834 Coinage Act passed, the value was locked in $20.67 per ounce of gold. The dollar itself was worth 1.5048 grams of gold. For almost 415 years, the value never changed with the exception of a couple of dips that went back up. It was not until 1933 when a permanent change in the value occurred. In 1933, the “Great Depression” sucked out the value of the dollar permanently. The dollar value was decreased to .8887 grams of gold. If that was not enough, the dollar took another major hit in 1971. Floating exchange rates occurred due to Nixon’s “easy money” policies that he implemented. With these policies, the dollar would lose about 90% of its value in relation to gold.  

Canadian Dollar/image form worldbanknotescoins.com

Other Countries That Use the Dollar

Not only is the dollar the official currency of the United States but it is also the most common currency around the world. There are more governments around the world that hold U.S. dollars than any other form of currency. Besides the United States, other countries that use the U.S. dollar officially or de-facto include Puerto Rico, Ecuador, El Salvadore, Zimbabwe, Guam, the Virgin Islands, and others.

Other countries that also use the name dollar to refer to their currency include Canada, Australia, and New Zealand.  

Tags: the american dollar, the Federal Reserve Note, 1900s, the Great Depression,

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Lyra Radford