From the founding of the United States to the passage of the National Banking Act, some 8,000 different entities issued currency, which created an unwieldy money supply and facilitated rampant counterfeiting.īy establishing a single national currency, the National Banking Act eliminated the overwhelming variety of paper money circulating throughout the country and created a system of banks chartered by the federal government rather than by the states. Notes printed by state-chartered banks, which could be exchanged for gold and silver, were the most common form of paper currency in circulation. Prior to the Civil War, banks printed paper money.įor America’s first 70 years, private entities, and not the federal government, issued paper money. The implosion of the continental eroded faith in paper currency to such an extent that the Constitutional Convention delegates decided to remain silent on the issue. This was largely because the founding fathers had seen the bills issued by the Continental Congress to finance the American Revolution-called “continentals”-become virtually worthless by the end of the war.
The Constitution only authorized the federal government to issue coins, not paper money.Īrticle One of the Constitution granted the federal government the sole power “to coin money” and “regulate the value thereof.” However, it said nothing about paper money.
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