By 1778 the Continental Currency had lost about 5/6th of its original value. By 1780 the Continental has lost 39/40th of its face value. By May 1781 the Continental Currency was worthless. Franklin said the depreciation of the currency was the tax that paid for the revolutionary war.
After the ratification of the Constitution, Continentals were exchanged for treasury bonds at 1% of face value.
Robert Morris (Superintendent of Finance of the US) with his own money created the Bank of North America, notes issued in his own name and financing from France. Then in 1785 the Continental Congress issued the US dollar.
Because of the collapse of the Continental Currency the gold and silver clause was included in the Constitution and prohibiting states from issuing anything but gold and silver coins as legal tender for debt payments aka taxes. The argument to prohibit federal paper money was defeated.
The Coin Act of 1792 was passed creating the US Mint. The mint had the authority to stamp any precious metal into standard coinage for anyone. There was no charge except for refining as necessary to meet the standard. The Department of the Treasury was created in 1981. The dollar remained the unit of account.
The value of gold increased in relationship to silver thus resulting in the melting of gold coins in the early 1800s. (Gresham's law is a monetary principle stating that "bad money drives out good".) This caused the Coin Act of 1834 to change the silver-gold ratio from 15:1 to 16:1. Thus the weight of gold per USD was reduced.
This created a new USD backed by 1.5 grams of gold. The old weight was 1.5 grams of gold per USD. This revaluation of the USD reduced the value in gold by 6%. This temporarily made both gold and silver coins money (generally accepted as a mode of exchange for goods and services.)
In 1853 the weights of all US silver coins below the US dollar was reduced. This action put the nation on the gold standard although this was not an official act. This made the USD by weight a bimetallism system, which caused the silver dollar to drop from the money supply, as was the case with gold in the early 1800s. (Gresham's law is a monetary principle stating that "bad money drives out good".) Foreign coins were widely used as money and accepted as legal tender until 1857.
By the end of the Civil War the USD had become the sole currency of the US as it is today.
The Bland-Allison Act required the government to buy between two and four million dollars per month of silver bullion at market prices and coin then into silver dollars. This was to subsidize silver producers.
When large silver deposits were discovered. Farm interest wanted to retain the bimetallic standard, which would inflate the USD and make farm debt easier to repay. Banking and commercial interest wanted to move to a gold only standard. Note the then common man wanted a non-gold standard and the wealthy wanted the gold standard. In spite of the opposition from 1873 to 1900, legislation chipped away the bimetallic system and the gold standard was adopted. With only some small changes the gold standard remained until 1971.
The Gold Standard Act was passed in 1900: “the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard” (That is the wording it is hard for me to follow which is why I quoted it.)
The USD was guaranteed convertible to 1.5 grams of gold. This standard was suspended twice during WWI. Once was a complete suspension and once for foreign exchange. The US companies had large debts payable to Europeans. This resulted in payment of those debts in gold. At one time the British pound exchange rate was as high a $6.75 while gold was less than $4.87. Gold was gushing out of the US at every level. This resulted in the Aldrich-Vreeland Act and creation of the Federal Reserve. The new Federal Reserve was able to restore the gold standard by the end of 1914.
By neither importing nor exporting gold between 1915 and 1917 the US was the only country to remain on the gold standard. It was the Federal Reserve and President Wilson who ban gold exports and suspended the gold standard for foreign exchange.
Every major global currency abandon the gold standard during the Depression. Demand for gold threatened monetary systems. To protect the gold standard the Fed was forced to increase interest rates. Runs on US banks began and gold was hoarded removing even more gold from the system.
Because of gold deflation Congress passed a number of acts suspending the gold standard except for foreign exchange. Gold was revoked as legal tender for debts; private ownership of large amounts of gold coins was ban. In all 7 acts and executive orders were upheld by the US Supreme Court in 1935.
The $20.67 per ounce foreign exchange rate was lifted and the USD was free to float with no set value in foreign exchange markets. This lasted for a year then the Gold Reserve Act set the gold dollar value at $35/oz. (112.53¢/g). This resulted in the USD being more attractive for foreign buyers. More foreign currencies were converted from gold to USDs and the US cornered the world gold market.
Post WWII the Bretton Woods system resulted in all other currencies being valued in USDs and therefore linked to the gold standard. This became a complicated process.
This greatly complicated foreign trade and unbalanced foreign currency conversions began to show profiteering opportunities. In 1968 attempts to regulate private markets were abandon. This resulted in central bank transaction in gold were conducted separate form market place prices. Central banks continued to trade gold at $35/oz. while market prices floated. Market prices jumped to $43/oz. then steeply increased to a $70/oz. in 1972. This forced the end of the dual system and Bretton Wood system. By 1973 gold was $100/oz.
Because of inflation, oil prices, Vietnam War, and other government spending plus balance of trade deficits the USD was worth less than the gold price used to back the USD. This led to President Nixon cancelling conversion of the USD to gold.
After the collapse of Bretton woods there was a sudden increase in gold prices. This increase in inflation was a result of government spending and debt not the USD, gold, or money. As history proved before gold could not stop government spending but it could strangle the common man and the economy.
The result has been that both gold and the USD has floated based on their individual commodity exchanges.
There have been several attempts do attack the USD. The plan behind the Euro was to replace the USD as the globe’s money on which all commodities and currencies are quoted against. BRICS was an attempt by Brazil, Russia, India, China and South Africa to knock off the USD. The main reason each of these has failed is sovereignty. To work money must have one sovereign entity not several with separate interest.
A Brief History of US Money
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