Museum of Trade, Finance, and the Fed
Exhibit 2: Show Me the Money
Native trade and commodity money
Louisiana is home to Poverty Point, the site of one of the earliest and most well-known prehistoric earthworks complexes in North America. Poverty Point sits in the upper Mississippi valley, where an extensive native trade network developed starting in about 2000 BCE. The original inhabitants traded certain essential supplies obtained from sometimes great distances such as the Gulf Coast, the Great Lakes region, and the Rocky Mountains.
Commodity monies began to emerge upon the arrival of European explorers in the 16th century. Native people traded furs and bear oil for colonial weapons, cloth, silver, and tobacco. In some of the American colonies, furs became a medium of exchange and standardized the trade of goods between the colonists and the people. Other colonial settlements traded in wampum (the northern colonies), rice (South Carolina), and tobacco (Virginia).
To learn more about Poverty Point, go to the Louisiana State Parks web page.
State banknotes
About 7,000 varieties of state banknotes were circulating in the United States around the time of the Civil War.
Legal tender notes and national banknotes
Greenbacks (legal tender notes) ranged in denominations from $1 to $10,000. Although these notes were widely accepted as a medium of exchange, most paper currency circulating between the Civil War and World War I consisted of national banknotes, which were first issued a year after the greenbacks, in 1863. Nationally chartered banks could issue national banknotes of up to 90 percent of the value of government bonds they held. These notes, which all carried the same basic design, were legal tender and redeemable in gold at the U.S. Department of the Treasury.
Private banknote companies printed national banknotes on authorized paper until 1877. After then, the Bureau of Engraving and Printing, a division of the Treasury, assumed responsibility for printing all national banknotes. National banknotes were eventually retired in 1935 and replaced by Federal Reserve notes.
You can find more information about national banknotes on the website of the Bureau of Engraving and Printing.
Confederate currency
By 1863, a confederate dollar was generally worth only about 30 cents in trade, and by 1864 it was essentially worthless.
Federal Reserve notes
First issued in 1914, Federal Reserve notes are now the major currency in the United States. The Federal Reserve still issues these notes, which have legal tender status. Denominations at first ranged from $5 to $10,000. The primary purpose of the large-denomination notes—$500, $1,000, $5,000, and $10,000—was to facilitate bank transfer payments. Since 1969, the $100 note has been the largest denomination in circulation. Today, Federal Reserve notes are not redeemable in any precious metal, although they are often accepted throughout the world in trade. In fact, more than half of all Federal Reserve notes circulate outside of the United States even though they do not have legal tender status outside of our borders.
Private scrip
Historically, issuers often used scrip to pay employees, who could then exchange it for goods sold at the company store. But the value of scrip was only as strong as the issuing company. If a merchant issuing scrip ever ran into financial difficulty, the money quickly lost its value.
Coinage
The first coins are thought to have circulated about two thousand years ago in the kingdom of Lydia, in what is now Turkey. For many centuries, coinage was the world's primary medium of exchange. Gold and copper coins issued by the French circulated in New Orleans at various times in the 18th century, but were often in low supply. The most popular coins in colonial New Orleans were Spanish, and the most common of these were silver pesos (or eight reales), more commonly called "Spanish dollars." (You can see an example of an eight reale coin on display in this exhibit.) These coins weren't found just in New Orleans—they were commonly used in trade throughout the colonies. Traders sometimes cut the coin into eight equal "bits"—or "pieces of eight"—to use in smaller transactions. The Spanish dollar circulated in the United States until 1857, when the Coinage Act forbade the use of foreign coins as legal tender.
French card money
French colonial authorities first issued card money in 1735 to pay French troops during a coin shortage. These authorities wrote promissory notes on the backs of playing cards, initially, which the troops later redeemed when new coins arrived from France. The colonial authorities eventually switched to simple cardstock. The French colonies often faced coin shortages, so card money was issued several times, in various forms and denominations. This paper money quickly depreciated in value due to overissuance.
For more on this subject, you might enjoy a discussion of card money on the Bank of Canada's currency museum web page.
Fractional currency
During periods of metal shortages, fractional currencies, or small-denomination paper money, replaced coins. During the Civil War, for example, when the hoarding of gold and silver coins created a shortage in small change, Congress authorized the issuance of postage stamps as temporary fractional currency. From 1863 to 1876, the U.S. government issued fractional currencies in denominations ranging from three cents to fifty cents. Confederate states also issued fractional currencies, as did private banks and businesses.
Gold notes and silver certificates
During the late 19th century, the Treasury offered paper certificates in exchange for deposits of gold or silver. The first gold certificates appeared in 1863; silver certificates, in 1878. Although there were nine issues of gold certificates, only four circulated among the public. Gold certificates were used mostly by banks and other financial institutions to settle their gold accounts. Silver certificates circulated widely in the United States until 1968, when, in response to a global silver shortage, Congress ruled they were no longer redeemable in silver. They were especially popular in small denominations—$1, $2, and $5.
When the United States entered into a severe economic depression in 1929, the public's demand for gold rose. The situation quickly turned into a major banking crisis. In 1934, the Gold Reserve Act made the private ownership of gold for monetary purposes illegal. This prohibition was lifted in 1975.
Other links of possible interest
American Currency Exhibit (Federal Reserve Bank of San Francisco)
The History of Money (Federal Reserve Bank of Minneapolis)