Over the centuries, the United States dollar better known to traders as the USD, has emerged as the world’s most actively traded currency and the core of the global financial system. The evolution of the currency is long and storied.
The USD has a history of over 240 years!
Although the USD can be traced back to 1690, it would be another 85 years before the foundation of the dollar was finally put in place. In 1775, the Continental Congress first introduced the Continental currency.
Ten years later, the dollar was chosen to become the monetary unit of the United States. It would be another seven years before the dollar was organized under a common monetary system.
In 1861, paper notes – referred to as ‘greenbacks’ due to the green color on the back of the notes – were formally introduced into the monetary system to help finance the American Civil War, which lasted until 1865. During the war, Congress established a national banking system that allowed the U.S. Treasury to oversee the issuance of National Bank notes.
The Gold Standard is Introduced Linking the USD to Gold
In 1900, the government passed the Gold Standard Act, which made gold the only standard for redeeming paper money. Prior to the Gold Standard, the government operated on a standard of bimetallism, which allowed silver to be exchange for gold.
Nearly 70 years after the Civil War, the Federal Reserve Act of 1913 created the central bank, which continues to operate to this day. The Federal Reserve Act established a new currency called the Federal Reserve Note, which was issued in the form of a ten-dollar bill.
As deflation gripped the U.S. economy during the Great Depression, Congress suspended the gold standard except for foreign exchange and banned private ownership of large quantities of bullion. Although the suspension of the gold standard was temporary, reinstating it was given low priority at the time.
Bretton Woods Gives the USD Power
In 1944, the Bretton Woods Agreement was officially announced. It not only established the rules for financial relations among Western nations and Japan, it pegged all other major currencies to the U.S. dollar. This gave them an indirect link to the gold standard. It was also in 1971 that the U.S. government discontinued the Federal Reserve notes, which no longer served any function.
In 1971, President Richard Nixon ordered the cancellation of the direct convertibility of the dollar to gold. Known as the Nixon shock, this led to the system of freely floating currencies that remains to this day.
Over the next forty-plus years, the U.S. currency would maintain its leadership pace in the global financial markets. The design of the currency itself underwent significant changes, including new security guidelines to deter counterfeiting by copiers and printers. The most notable effort to counteract counterfeiting occurred in 1990 when the Federal Reserve introduced a security thread and microprinting into its currency. These features first appeared in the Series 1990 $100 notes.