America has had a history of fiat currencies dating back as far as the American Revolution. Even before America’s colonists won their independence from the British. It was in 1775 that the Continental Congress attempted creating its first fiat currency, the Continental.
During the early days of the Revolutionary War the American colonists were having serious trouble financing the revolution. Efforts to acquire additional money from England were slow at best. Furthermore the Continental Congress was forbidden to directly tax the colonists for war funding efforts. A solution for this immediate problem was finally created. The answer was to issue paper currency or bills of credit. This new money was called "Continental Currency" or Continentals which became America’s first attempt at the use of fiat currency in the new America. At the time there were many congressmen who realized that over issuing paper currency was just a hidden form of taxation. However at the time this was the only option they had to levy such funds.
In June 1775 $ 2 million bills of credit were issued by order of the Continental Congress. At the time of issuance it was announced that this would be the only time these bills of credit would be issued. Four years later in 1779 the Continental Congress authorized an additional $200 Million continentals be printed. Knowingly, inflating the money supply and disregarding its own promise to only print $2 million four years earlier for one time only. The colonies were expected to pay back these funds. Depreciation, which had already started in 1776, was now accelerating. After many attempts on the collection of these funds the colonies still never paid it back. By 1780 the continental currency had devalued so much that a famous expression for that time was born. "Not worth a Continental" because its value then, was only worth 1/80th of a one dollar silver coin. The continental currency was finally replaced by the US dollar in 1785 becoming the unit of national currency by the Continental Congress.
76 years later fiat currency was again tested in America. At the American juncture of the American Civil War just a couple months after the United States Confederacy was created, a new fiat currency called the Confederate States of America dollar had began to go into circulation. This money was created and used to pay for the South’s war expenses. Printed in many designs, and denominations ranging from a $ 1/10th confederate dollar note to a $1000 dollar confederate note and all hand signed. They were printed between 1861 and 1865 with a total value of $ 1.7 billion in circulation.
These notes were very popular at the beginning of the confederacy within the Confederate States of America. The first notes printed were redeemable and payable upon demand and used for goods and services. However, as time went along the notes started becoming payable not upon demand, but rather into the future. At increased rates when these confederate dollars were printed, they would have an inscription upon them in varying forms. Such as "Six months after the ratification of a treaty of peace between the Confederate States and the United States The Confederate States of America will pay to the bearer on demand".
As the Confederate War continued on, more and more of these confederate dollars were printed and the dates in which they could become redeemable kept moving further and further into the future. Inflation at the time was skyrocketing. The actual value of the confederate dollar was quickly becoming worthless. With the war ending to a victory for the North, the South’s gold bullion was confiscated and the confederate dollar was now completely destroyed.
50 years later, at the beginning of WWI in 1915 again the United States regressed to the use of floating large sums of fiat money during the course of the next ten years. This was done to finance the enormous costs for the war. The money for the war effort was loaned to America by the newly created Federal Reserve Bank. The American people had to pay this money back plus interest which made the owners of the new Federal Reserve Bank very rich.
The Bretton Woods agreement was in place from 1944 through 1971 where the US enjoyed a fairly stable 27 year period without fiat money. In 1971 President Richard M. Nixon was forced to close the gold window by taking the United States and the world out of the Bretton Woods Agreement. This removed the last peg attaching the US dollar to gold. After this event occurred the United States again inherited its fiat currency. A fiat currency backed by nothing other than the faith and promises of the US Government to pay the bearer and its acceptance from the American people. From this point on America has allowed the Federal Reserve’s money press to run freely and drastically overinflated its money supply. From 1971 through today the US dollar has lost greater than 93 percent of its original purchasing power through inflation caused by excessive money creation.
It is a sad deal for America that the United States itself, could not even learn from its own past mistakes. Numerous times throughout history many nations have fallen by the use of fiat currency. Sadly America is close at hand to join them. Protect yourself and your family, by investing in physical gold and silver. As throughout history they have always been true stores of value. Physical gold and silver Act as insurance policies for asset protection, by hedging against inflation, deflation, or even the destruction of paper currency through hyperinflation.
Tom Genot -