The Beginnings... and Beyond

From the earliest times when commodities such as tobacco and beaver pelts were used as money, to the present when credit and debit cards are commonplace, money has always played a central role in the American experience.

Early in our history, our monetary system consisted of numerous foreign coins and paper currencies issued by the thirteen colonies and the Continental Congress. More than two hundred years later, we now have a single national currency and privately owned banks chartered by state and federal governments. Furthermore, a central bank, the Federal Reserve, has replaced gold as the regulator of the value of our money.

The evolution from a decentralized system to a more centralized system has been marked by controversy and slowed by a general suspicion of banking power. Each change has involved extensive legal debate focusing on the rights of state and federal governments and the freedom of the individual.

Another important dimension of our nation's economic development is the role of gold. Once a cornerstone of the financial system, gold has gradually but perceptibly become less important, both as a medium of exchange and as a regulator of the money supply. This process was driven by the nature of gold itself as well as by the changing needs of our modern and complex economy.

View Money Matters: The American Experience With Money

Is our money backed by gold?
Does our Constitution authorize national currency?
Why does the Fed issue currency?

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The Story Continues...

Since the founding of our country, we have moved from a decentralized to a fairly centralized monetary system. We started with gold and silver coins as the chief medium of exchange, supplemented by colonial currencies and bank notes, and moved to a system of uniform national currency with legal tender status.

As we have seen, the Constitution and gold have played extremely important roles in this evolution. From the early republic until well into this century, the Constitution, and how we interpreted it, greatly influenced the federal government's involvement in monetary affairs.

And for many years, gold played an important role as a regulator of the money supply. But after many decades of debate on how best to maintain a healthy financial system, we created the Federal Reserve System in the early years of this century. We did this because we realized that gold and the gold standard were no longer adequate regulators of money's value in our modern and complex economy. The Federal Reserve provides a more flexible means of regulating the money supply, thus helping to ensure a healthy, growing economy with price stability.

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