by Jeff Desjardins , visualcapitalist:
We’ve previously showed you 31 Fascinating Facts About the Dollar’s Early History, which highlighted the history of U.S. currency before the 20th century. This was a very interesting period in which we looked at the money used by the first colonists, the extreme bust of the Continental currency, the era of privately-issued bank notes, and Congress’ emergency issuance of the fiat “greenback” during the Civil War.
However, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is now the dominant form of U.S. currency both domestically and abroad.
Leading up to the 20th century, there were four main forms of U.S. currency being used:
- Gold and silver coins
- Gold and silver certificates
- Commercial bank notes, issued by private banks and backed by government bonds
- “Greenbacks”, a fiat currency declared legal by Congress to help fund the Civil War
In 1913, however, the Federal Reserve Note was authorized as U.S. currency. The new notes were supposed to be backed by gold or other “lawful money”, based on the stipulations of the Federal Reserve Act of 1913.
However, this only lasted about 20 years. By the time of the Great Depression, the Fed considered itself to be in a tight spot. It simply did not have enough gold to back all Federal Reserve Notes and Gold Certificates in circulation, and at the same time wanted flexibility with monetary policy to fight deflation and unemployment.
In 1933, the Emergency Banking Act was passed by President Roosevelt, and Executive Order 6102 was also signed. The latter move famously criminalized monetary gold, and ended the gold standard.
After all, if gold can’t be legally owned, it can’t be legally redeemed.