On Feb. 3, 1690, the Massachusetts Bay Colony was said to have issued the first paper money in the United States. The purpose was to help fund military action against Canada during King William's War. Massachusetts was indeed a truly pioneering colony when it came to money, as they were also the first to mint their own silver coins in 1652.
Key Takeaways
- Before money was invented, goods and services were exchanged through bartering or using commodities like salt, cattle, or grains.
- People used metal objects as money to exchange goods and services as early as 5000 B.C.
- Paper money in the United States dates back to 1690 and represented bills of credit or IOUs.
- New currencies were introduced in the U.S. in 1861 to help finance the Civil War.
- In 1996, a series of bills were introduced that used new methods to prevent counterfeiting.
The History of Paper Money
Money is anything that is commonly accepted by a group of people in exchange for goods or services. Most countries have unique exchange systems of coins and paper money. Some currencies, like the euro, can be used across entire regions.
Prior to the invention of money, goods and services were typically exchanged through bartering. For example, one person might trade eight bags of rice for a goat. Basic commodities—such as salt, tea, seeds, tobacco, and livestock—have been used as money to exchange goods and services as well.
Metal objects represented money as early as 5000 B.C. Lydians started using coins in the 7th century B.C. The earliest forms of paper money were developed in China during the Tang Dynasty (618 - 907 A.D.). In the United States, the first paper money created (in 1690) was called a bill of credit and represented the colony's obligation to the soldiers. Soldiers could spend or trade the colony's IOU just like silver and gold coins.
During the revolution of 1775, colonial leaders tried to replicate Massachusetts' paper experiment on a wider scale, but the newly-christened continentals could not be readily exchanged for silver or gold. Instead, Congress enacted complicated rules for future redemption, assigning each state a quota of continental dollars that could be returned to the government at a future date. On a small scale, it might have worked, but so much money was printed that rapid inflation stripped them of all their value.
Less than 100 years later, in 1861, two competing currencies were used to finance the opposing sides of the Civil War. Their values fluctuated with the fortunes of the war. Yet, it wasn't until the National Banks Act after the civil war that the U.S. government introduced a monetary system where banks could issue paper notes based on their holding of government bonds. These disparate currencies were taxed out of existence in the following decades and replaced with national bank notes, giving the U.S. its first uniform paper currency.
The Federal Reserve Act of 1913 created a national banking system that could keep up with the changing financial needs of the country. The Federal Reserve Board then issued the first federal note in the form of a ten-dollar bill in 1914. The Federal Reserve later decided to reduce the actual size of the notes by 30%. Designs on the notes would not change again until 1996, when a series of improvements were made to make the U.S. dollar more counterfeit-proof.
Correction–Dec. 12, 2021. A previous version of this article incorrectly stated that continental currency was not backed by gold or silver.
FAQs
Paper money in the United States dates back to 1690 and represented bills of credit or IOUs. New currencies were introduced in the U.S. in 1861 to help finance the Civil War.
When did the U.S. start using paper money? ›
The first U.S. coins were struck in 1793 at the Philadelphia Mint and presented to Martha Washington. The government did not issue paper money until 1861.
Why does America use paper money? ›
Paper money was authorized by the United States Congress as a means to provide emergency funding for the Civil War. Prior to 1861 most U.S. money was in the form of gold, silver and copper coins.
What was the problem with paper money when it was first used in the 1700s? ›
To meet the monetary demands of the war, State and Continental governments printed large amounts of currency, leading to rapid depreciation. By the end of the war, these paper notes became effectively worthless. Additionally, British counterfeiting gangs contributed further to the decreased value.
When did the American paper money first appear in _______________ and was called the Continental? ›
Continentals refers to paper currency issued by the Continental Congress in 1775 to help fund the American Revolutionary War. Continentals quickly lost value, partly because they were not backed by a physical asset like gold or silver, but also due to the fact that too many bills were printed.
Is a $2 bill worth $5000? ›
Although $2 bills are rare to find, if you own one, there's a chance it has a high value. Based on specific factors, some versions of the currency may be worth up to $5,000, per the US Currency Price Guide. FOX 13 Tampa reported that these bills were discontinued by 1966 but brought back 10 years later.
Is there a $3 bill? ›
While a $3 bill doesn't officially exist in U.S. currency, novelty versions have been created for amusem*nt.
Do they still make $2 bills? ›
Most $2 bills in circulation are worth exactly that: $2. And even though you don't see a lot of $2 bills in everyday life, they are still being printed. The Treasury Department's Bureau of Engraving and Printing (BEP) planned to print up to 204 million $2 bills in 2022, CNN reported.
Who is on the $10,000 dollar bill? ›
Just as this $10,000 bill, produced in 1918, is rare, the likeness on the front might be unfamiliar. It shows Salmon P. Chase, who served as President Lincoln's Secretary of the Treasury from 1861 to 1864.
What is the oldest dollar bill? ›
The first $1 notes (called United States Notes or "Legal Tenders") were issued by the federal government in 1862 and featured a portrait of Secretary of the Treasury Salmon P.
Paper money
American paper currency comes in seven denominations: $1, $2, $5, $10, $20, $50, and $100. The United States no longer issues bills in larger denominations, such as $500, $1,000, $5,000, and $10,000 bills. But they are still legal tender and may still be in circulation.
Who is on the $2 bill? ›
Who's on a 2 dollar bill? The front of the $2 bill features a portrait of Thomas Jefferson, a founding father and the third U.S. President. The iconic painting "The Signing of the Declaration of Independence" by John Trumbull graces the back.
What is the highest currency in the world? ›
The highest-valued currency in the world is the Kuwaiti Dinar (KWD). Since it was first introduced in 1960, the Kuwaiti dinar has consistently ranked as the world's most valuable currency.
When did U.S. start using paper currency? ›
Paper money in the United States dates back to 1690 and represented bills of credit or IOUs. New currencies were introduced in the U.S. in 1861 to help finance the Civil War. In 1996, a series of bills were introduced that used new methods to prevent counterfeiting.
How many times would you have to fold a dollar before it will tear? ›
Currency paper is composed of 75 percent cotton and 25 percent linen. How durable is paper currency? It would take about 4,000 double folds (first forward and then backwards) before a note will tear.
What was money called in 1776? ›
Continental currency, serial no. [133291] series A, issued by Congress on 17 February 1776 for one sixth of a dollar.
When was the first U.S. dollar printed? ›
The design, featuring George Washington on the face and the Great Seal on the back, has not changed. The first $1 notes (called United States Notes or "Legal Tenders") were issued by the federal government in 1862 and featured a portrait of Secretary of the Treasury Salmon P.
Did the U.S. print money in the 1920s? ›
In the '20s, the Fed printed dollars in efforts to help Great Britain reestablish its pound sterling as a premier currency following World War I.
What currency was used in America during the 1700s? ›
Colonial Coins
The most famous of these was the Spanish Dollar, which served as the unofficial national currency of the colonies for much of the 17th and 18th centuries. With its distinctive design and consistent silver content, the Spanish dollar was the most trustworthy coin the colonists knew.
