Wednesday, May 31, 2017

Bank Notes—They’re not worth the paper they’re printed on

The first paper money to appear in America was printed in 1690, when the Massachusetts Bay Colony created bills to pay soldiers engaged in campaigns against the French in Canada. What started as an emergency measure, turned out to be a solution to the long-term problem of building an economy without large reserves of precious metals. Eventually, all of the other colonies issued their own bills.

Public Domain images

The biggest problem with this system was that paper money didn’t have a uniform value. A pound note from one colony might not be worth a pound in another colony. In fact, it might not be worth a pound anywhere. Some colonies printed far more paper money than they could ever redeem.

Benjamin Franklin was a strong advocate of paper currency in America. Although he argued in favor of it before the English Board of Trade, in 1764, the English Parliament passed the Currency Act, which prohibited any further issue of American paper money.

By Benjamin Franklin and David Hall (printers) - Image by Godot13, Public Domain,

Counterfeiting became a huge issue since anyone with a printing press could make money. Benjamin Franklin’s firm manufactured paper money for Pennsylvania, New Jersey, and Delaware. Mr. Franklin came up with some creative methods for foiling counterfeiters. The most successful one included a leaf on the back of the paper money with finely detailed veins, which no one else was able to recreate.

In 1775, the Continental Congress issued the colonies' first uniform currency, the bills came to be called "Continentals." They were used for a time, but in the end, they were worthless, as confederate dollars were after the Civil War. 

Public Domain image
Throughout the 1800s countless number of banks, companies, and merchants issued their own currency. By the 1850s, U.S. banks had issued more than 10,000 kinds of bank notes, varying in size, denomination, design, and value. There were huge problems with this system, because the dollars often weren’t worth the paper they were printed on. A banknote’s value was derived from its ability to be redeemed for gold or silver at the issuing bank, but banks rarely had enough gold to pay for all the dollars they’d printed.

Before the creation of federally backed paper currency in 1862, the federal government didn’t believe issuing paper money was its responsibility, although it did coin gold and silver. Since the Constitution forbid states from printing money, banks became the main suppliers of paper money in the U.S.

Chase Dollar - courtesy of
Banks that were poorly capitalized went to great effort to ensure that their notes weren’t redeemed. For instance, the Union Bank of Tennessee issued notes only redeemable in New Orleans. Banks also halted redemptions during financial panics, and when a bank failed, its notes became worthless.

Congress eventually phased out the bank notes issued by state banks by putting a tax on them, thereby discouraging their use. In 1863-64, Congress passed a series of national bank acts, which set up a system of privately owned banks chartered by the federal government. These national banks issued notes backed by the U.S. government bonds, and these national bank notes became the country’s chief currency.

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Bestselling author Vickie McDonough grew up wanting to marry a rancher, but instead, she married a computer geek who is scared of horses. She now lives out her dreams penning romance stories about ranchers, cowboys, lawmen, and others living in the Old West. Vickie is an award-winning author of more than 40 published books and novellas, with over 1.5 million copies sold. Her novels include End of the Trail, winner of the OWFI 2013 Best Fiction Novel Award. Whispers on the Prairie was a Romantic Times Recommended Inspirational Book for July 2013. Song of the Prairie won the 2015 Inspirational Readers Choice Award. Gabriel’s Atonement, book 1 in the Land Rush Dreams series placed second in the 2016 Will Rogers Medallion Award. Vickie has recently stepped into independent publishing.


  1. Very interesting! I'm amazed at the number of things I use every day that I don't even think of their origins!

    1. So true. We're spoiled to all the conveniences we have these days.

  2. Informative and interesting post about bank notes. Knowing the origins of bank notes and other things that impacted America economy is well worth the research time. Thank you for sharing, Vickie.

    1. Thanks for you comment, Marilyn. I learned a lot researching this article. :)