A Brief History of MoneyA Brief History of Money

What is Money?What is Money?

We normally think of currency when we think of We normally think of currency when we think of money. However, more generally speaking, money. However, more generally speaking, money is any commodity which satisfies the money is any commodity which satisfies the following:following: Unit of accountUnit of account Store of ValueStore of Value Medium of exchangeMedium of exchange

Early Commodity MoneyEarly Commodity Money

Until around 3000BC, Until around 3000BC, commodities such as commodities such as livestock and grain livestock and grain were used as money were used as money for many societiesfor many societies

China: 1200 BCChina: 1200 BC

The Chinese began The Chinese began using cowries as using cowries as moneymoney

China: 1200 BCChina: 1200 BC

By 1000 BC, “tool By 1000 BC, “tool currencies” were currencies” were adopted. These were adopted. These were miniature metal miniature metal models of spades, models of spades, hoes, blades, etc.hoes, blades, etc.

The First True Coins: 561 BCThe First True Coins: 561 BC

The Lydian King The Lydian King Croesus created the Croesus created the first true coin. first true coin.

Middle Ages: 800 – 1500 ADMiddle Ages: 800 – 1500 AD

Medieval coinage was Medieval coinage was standardized by standardized by Charlemagne when Charlemagne when he conquered most of he conquered most of Europe around Europe around 800AD 800AD

Chinese Paper Currency: 806 ADChinese Paper Currency: 806 AD

Due to a severe Due to a severe copper shortage, the copper shortage, the Chinese begin issuing Chinese begin issuing paper currency. paper currency. Frequent reissues Frequent reissues fuel inflationfuel inflation

1100 AD: British Tally Sticks1100 AD: British Tally Sticks

King Henry issued the King Henry issued the first Tally Sticks in first Tally Sticks in 1100AD. This 1100AD. This practice lasted in practice lasted in England for over 700 England for over 700 years!years!

Paper Money in EuropePaper Money in Europe

In the 1660’s, goldsmith’s In the 1660’s, goldsmith’s notes are accepted as notes are accepted as evidence of ability to pay. evidence of ability to pay. These notes mark the These notes mark the first use of Banknotes in first use of Banknotes in England. England.

The New WorldThe New World

• The colony of The colony of Massachusetts was Massachusetts was the first colony to the first colony to issue paper currency issue paper currency in the USin the US

The First US DollarThe First US Dollar

To finance the To finance the Revolutionary War, Revolutionary War, the congress issued the congress issued “Continentals”. Due “Continentals”. Due to oversupply, they to oversupply, they rapidly became rapidly became worthlessworthless

The First Bank of the USThe First Bank of the US

The First bank of the US was chartered in 1789 The First bank of the US was chartered in 1789 by Alexander Hamiltonby Alexander Hamilton

The Second Bank of the USThe Second Bank of the US

The Second Bank of the US was founded in The Second Bank of the US was founded in 1816. Its charter renewal was vetoed by Andrew 1816. Its charter renewal was vetoed by Andrew Jackson in 1836Jackson in 1836

Free Banking: 1837-1866Free Banking: 1837-1866

During the free banking era, virtually anyone During the free banking era, virtually anyone could open a “bank” and issue notes.could open a “bank” and issue notes.

Free Banking: 1837-1866Free Banking: 1837-1866

By 1860, it is estimated that up to 8,000 different notes By 1860, it is estimated that up to 8,000 different notes were in circulation with varying degrees of backing.were in circulation with varying degrees of backing.

An estimated 60% of all banknotes were counterfeitAn estimated 60% of all banknotes were counterfeit

1863: Lincoln signed the National Banking Act, 1863: Lincoln signed the National Banking Act, which created a dual banking systemwhich created a dual banking system

National BanksNational Banks• Chartered and Chartered and

supervised by OCCsupervised by OCC• Could issue national Could issue national

currencycurrency

State BanksState Banks• Controlled by State Controlled by State

Regulatory authoritiesRegulatory authorities• Restricted from Restricted from

issuing national issuing national currencycurrency

A National CurrencyA National Currency

Under the National Banking Act, notes were printed by Under the National Banking Act, notes were printed by the US Treasury. National banks were required to the US Treasury. National banks were required to purchase US government bonds as backing for the purchase US government bonds as backing for the notes. State bank notes were taxed at 10% and were notes. State bank notes were taxed at 10% and were soon driven out of circulation.soon driven out of circulation.

GreenbacksGreenbacks

The Federal Government issued “greenbacks” The Federal Government issued “greenbacks” which were declared legal tender.which were declared legal tender.

Gold/Silver CertificatesGold/Silver Certificates

In an effort to increase precious metal reserves, In an effort to increase precious metal reserves, the government began issuing gold and silver the government began issuing gold and silver certificates in 1863certificates in 1863

Gold/Silver CertificatesGold/Silver Certificates

Silver certificates continued to be issued until the Silver certificates continued to be issued until the 1960’s when the price of silver jumped to $1.29 1960’s when the price of silver jumped to $1.29

The Federal Reserve System was created in The Federal Reserve System was created in 1913 by Woodrow Wilson1913 by Woodrow Wilson

The role of the Fed is to control the supply of The role of the Fed is to control the supply of currency, as well as regulate the banking systemcurrency, as well as regulate the banking system

The Gold Reserve Act: 1934 The Gold Reserve Act: 1934

In order to deal with In order to deal with the banking crisis, the banking crisis, FDR orders US FDR orders US citizens (as well as citizens (as well as the Fed) to surrender the Fed) to surrender all gold coins, bullion, all gold coins, bullion, and certificates to the and certificates to the US TreasuryUS Treasury

The Gold Reserve Act: 1934 The Gold Reserve Act: 1934

Ownership of gold by Ownership of gold by US citizens was US citizens was illegal until the law illegal until the law was repealed in 1974!was repealed in 1974!

Nixon Closes the Gold WindowNixon Closes the Gold Window

On August 15, 1971, Nixon closes the gold window and On August 15, 1971, Nixon closes the gold window and the US dollar ceases to be convertible into gold. This the US dollar ceases to be convertible into gold. This marks the beginning of the current anchorless system.marks the beginning of the current anchorless system.