When was the US dollar created? The history of the US dollar is intertwined with the history of the United States itself. From the early colonial days when foreign coins circulated to the Continental dollars printed to finance the Revolutionary War, all the way to the modern Federal Reserve notes in use today, the US dollar has evolved along with the young nation.

If you’re short on time, here’s a quick answer to your question: The US dollar as we know it today, with the familiar $ sign and backed by the full faith and credit of the US government, was created with the Coinage Act of 1792 which established the US Mint and authorized the first official US currency.

In this comprehensive guide, we will explore the origins of US currency, from the varied coins used in colonial times to the Continental dollars that were used to fund the Revolution, to the establishment of the US Mint and the creation of the first official US coins and paper money in the late 18th and early 19th centuries.

We will also look at more recent developments like the creation of the Federal Reserve and the end of the gold standard that have shaped the modern US dollar we use today.

Foreign Coins and Colonial Paper Money

Spanish Pieces of Eight

The Spanish silver coin known as the “piece of eight” or the “Spanish dollar” was widely used as currency in the American colonies. It contained approximately one ounce of silver and was divided into eight reales. These coins were minted in Spain’s American colonies such as Mexico, Peru, and Bolivia.

As Spain was a dominant global power in the 16th-19th centuries, the piece of eight became an accepted trade coin worldwide.

There were frequent shortages of coinage in the colonies, especially smaller denomination coins needed to conduct business and trade. The Spanish coins tended to retain their value better than other coins in circulation and became a prime target for export or melting down for their precious metal.

To deal with the lack of small change, the practice of “cutting” the coins into halves or quarters emerged, literally cutting the coins into pieces.

Foreign Coin Shortages

As international trade with the American colonies grew rapidly, an increasing shortage of foreign coins emerged, especially for small transactions. According to research from the Federal Reserve Bank of Philadelphia, there were “chronic shortages of small change” which made trade very difficult.

Merchants and individuals would go to great lengths to secure a supply of foreign coins. This included gathering, hoarding, and reusing old worn-down coins. Makeshift solutions also arose like using nails as makeshift currency or bartering goods for other goods.

There was no centralized or standardized American currency at this time.

Colonial Paper Money

To help alleviate the foreign coin shortages, the colonial governments experimented with issuing early paper money. For example, the Province of Massachusetts Bay issued paper bills of credit in 1690 to help fund military expeditions. Other colonies soon followed suit.

These paper monies functioned as fiat currencies with no intrinsic value but allowed internal trade and commerce when coinage was scarce.

However, the paper currencies suffered from depreciation, oversupply, and counterfeiting. Per research from the Federal Reserve, they traded at about 50% discount compared to their official value. This experience made the Founding Fathers wary of paper money and influenced the constitutional clauses about coinage.

Continental Currency and the Revolutionary War

Financing the Revolutionary War

The Continental Congress first issued paper money in 1775 to finance the Revolutionary War against Great Britain. Known as Continental currency or Continentals, these notes were not backed by gold or silver but by the future taxing power of the fledgling American government.

Without solid backing, the value of the currency soon began to drop.

Initially, Continental currency retained its value. But as the war dragged on and more and more money was printed and put into circulation, inflation began kicking in. By 1778, Continentals had lost so much value that the expression “Not worth a Continental” entered popular lexicon.

This phrase was used to denote something utterly worthless.

The Continental Congress continued printing money at an accelerating rate to finance the war’s huge costs. According to historian Robert Wright, by 1781 a single Continental paper dollar was worth only 1/40th of its face value.

The flood of currency contributed to widespread price inflation, even leading to shortages of goods as merchants and others were unwilling to accept the rapidly depreciating Continentals.

Hyperinflation and Worthlessness

The value of Continental currency went into freefall as the war neared its end. In his book 1781: The Decisive Year of the Revolutionary War, historian Robert Tonsetic notes that by 1781, it took 167 paper dollars to equal the value of one dollar in hard currency.

He adds that George Washington’s troops were close to mutiny over not being properly paid.

After the Revolutionary War officially ended in 1783, Continental currency lost all value. Tonsetic observes that by then the phrase “not worth a Continental” had entered common usage as a synonym for something completely worthless.

The Continentals contributed to the economic turmoil in the newly independent nation in the war’s aftermath.

The Continental Currency experiment made the American people wary of paper money for decades. According to the Federal Reserve’s website, this experience was one reason the U.S. Constitution only granted the federal government power to coin money and regulate its value rather than issue paper currency.

It would take another eight decades before the government issued a fiat paper currency with the creation of the United States Note in 1862.

The Coinage Act of 1792

Establishing the US Mint

On April 2, 1792, the Coinage Act was passed by Congress and signed into law by President George Washington, establishing the first national mint in the United States. The act called for the creation of the US Mint to standardize coinage that had previously been irregular under the Articles of Confederation.

The act established Philadelphia as the site of the first US Mint and regulated coin denominations, requiring all US coins to contain a certain amount of gold, silver, or copper. It authorized the production of the following coins:

  • Eagles ($10 gold)
  • Half eagles ($5 gold)
  • Quarter eagles ($2.50 gold)
  • Dollars (silver)
  • Half dollars (silver)
  • Quarter dollars (silver)
  • Dimes (silver)
  • Half dimes (silver)
  • Cents (copper)
  • Half cents (copper)

The act aimed to create a reliable monetary system for the fledgling nation and boost commerce. It established the silver dollar, which contained 371 4/16th grain (24.1 g) pure or 416 grain (27.0 g) standard silver, as the unit of currency for the United States.

First Official US Coins

In 1793, the US Mint began producing the first official US coins with the following details:

Coin Details
Half cent 100% copper
One cent (penny) 100% copper
Half dime 89.24% silver, 10.76% copper
Dime 89.24% silver, 10.76% copper
Quarter dollar 89.24% silver, 10.76% copper
Half dollar 89.24% silver, 10.76% copper
Silver dollar 89.24% silver, 10.76% copper

These first coins were handmade by engravers and blacksmiths rather than being mass-produced, so each one was unique. The coins did not yet have “In God We Trust” or “E Pluribus Unum” inscribed. The silver dollar displayed an image of Lady Liberty and the year of minting.

The Birth of the US Dollar

While the dollar was authorized by the Coinage Act of 1792, regular circulation of the currency did not begin immediately. However, with the increased production of US coins over the subsequent years, the US dollar was firmly established as the standard monetary unit by the early 1800s.

The dollar has endured over 200 years as the most widely used currency in the world.

Reportedly only 1,758 silver dollars were minted in 1794, making them incredibly rare and valuable today! In 2021, one 1794 silver dollar sold at auction for $2.8 million.

The Coinage Act of 1792 and the establishment of the US Mint and US dollar ushered in an era of legitimate currency for the newly formed United States. While updates have been made over the centuries, such as adding “In God We Trust” to coins beginning in the 1860s, the denominations outlined in the original Coinage Act essentially still remain in use today.

19th Century Expansions and Contractions

Silver and Gold Standards

The 19th century saw several changes to the metallic standards backing US currency. The Coinage Act of 1792 established a bimetallic standard, with the US dollar defined in terms of both silver and gold.

However, persistent issues with maintaining silver parity led to a shift towards a de facto gold standard in the 1830s-1840s.

The discovery of gold at Sutter’s Mill in 1848 then sparked the California Gold Rush, greatly increasing gold reserves and monetary expansion. However, this expansion contributed to rising prices and economic instability over the following decades.

The Coinage Act of 1873 later demonetized silver, formally moving the US to a gold standard. This contributed to the Panic of 1893, prompting calls for a return to bimetallism from silver interests and farmers who benefitted from inflationary policies.

Civil War Era Money

The US dollar went through major upheaval during the American Civil War era in the 1860s. The pressures of financing the war led the Union government to issue non-gold-backed paper currency known as Greenbacks.

This contributed to rapid inflation, with the Greenback dollar falling to just 35 cents in gold value by 1864. The National Bank Act of 1863 also established a national banking system and national bank notes as currency.

In the Confederacy, paper currency became extremely devalued from overprinting, becoming practically worthless by the war’s end. Shortages of coinage led to localized tokens, merchant scripts, and encased postage stamps being used as makeshift currency.

This chaos and instability around competing currencies and inflating prices affected the US dollar’s integrity and trust for years after the war.

Panics and Depressions

The 19th century saw several major financial crises that created instability around the US dollar:

  • The Panic of 1819, the US’s first major financial crisis, caused widespread bank failures and economic depression.
  • The Panic of 1837 shuttered banks and bankrupted thousands, partly fueled by speculative lending practices with paper bank notes and credits.
  • The Panic of 1857 had ripple effects from international markets and trade, made worse by weak domestic financial regulation over banks and railroads.
  • The Panic of 1873 kicked off a prolonged-Long Depression throughout the 1870s-1880s, made more complex by ongoing debates over gold versus silver-backed dollars.
  • The Panic of 1893 was among the worst in US history, with over 15,000 business failures, a 20% unemployment rate, and markets crashing to half their prior values. Recovery took years.

This turmoil was fueled by ongoing issues around integrating new territories and states, financing infrastructure for western expansion and railroads, volatile agricultural markets, and the fragility of newly modernized banking and financial systems.

The US dollar struggled to maintain stability and trust through these growing pains.

The Federal Reserve and the Modern Dollar

Founding the Federal Reserve

The Federal Reserve was created in 1913 to serve as the central banking system of the United States. Prior to this, the US had faced multiple financial panics and bank failures in the 19th and early 20th centuries.

The goal of the Federal Reserve was to provide greater oversight and regulation of banks, while also serving as a “lender of last resort” to prevent bank runs.

Some key events that led to the Federal Reserve’s formation included the Financial Panic of 1907 when many banks experienced runs and failures. This highlighted the need for a central bank to stabilize the system.

Also influential was the 1908 Aldrich-Vreeland Act, which established the National Monetary Commission to study potential banking reforms.

The Gold Standard Ends

For most of its early history, Federal Reserve notes and deposits were fully convertible into gold. This “gold standard” link was suspended during the Great Depression as bank failures soared again. By 1933, President Franklin D. Roosevelt ordered private gold ownership banned in the US, effectively ending gold convertibility.

The 1944 Bretton Woods agreement established the US dollar as the global reserve currency, valued at $35 per ounce of gold. However, the fiscal costs of 1960s social programs plus military spending strained this commitment.

In 1971, President Nixon suspended dollar-to-gold conversions, ending the gold standard completely. This allowed much greater money supply expansion and inflation in subsequent years.

FDIC Insurance and the Modern Dollar

Other key changes helped stabilize the banking system over time. The Banking Act of 1933 included measures prohibiting banks from risky investment activities and created federal deposit insurance through the FDIC.

This safety net prevented costly bank runs, as depositors knew their accounts were protected by up to $100,000 if an FDIC-insured bank failed.

These reforms and the end of gold convertibility allowed the Federal Reserve and banking system greater flexibility to stimulate growth through looser monetary policies. While dollar devaluation and inflation also resulted, the tradeoffs were viewed as reasonable to maintain full employment goals.

This framework remains intact today, though debates around Federal Reserve policy continue.

When Was The US Dollar Created? – Conclusion

As we have seen, the history of the US dollar stretches back to colonial times and is intertwined with major events in American history like the Revolutionary War, the Civil War, and the Great Depression.

While foreign coins and paper money were used early on, it was the Coinage Act of 1792 that gave us the first official US currency.

Today’s Federal Reserve notes marked with the familiar $ sign can trace their lineage back over 200 years to those first US Mint coins. Yet as central banking and economic changes like the end of the gold standard remind us, the story of the US dollar continues to evolve.

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