4th of July Week Special Issue: The Incredible Story of How America Adopted The Dollar, The Greenback, The Dime and The Cent (#183 - 7 July 2024)

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Our American friends are celebrating their Independence Day this weekend. But do you know how and why America adopted the "dollar"? And how the "greenback" came to be?

As we’ve explained in past issues of this newsletter, several civilizations throughout history have had formative impacts on the development of modern money and commercial banking, from the Lydians and the Greeks to the Crusaders and Renaissance-era Italian bankers.

A good example is the experience of the early American colonies in creating the U.S. Dollar, especially the innovative effects of early paper banknotes.

Looking back throughout history, one would assume that the early American colonies used the British currency of pounds, crowns, shillings, and pence. 

But the reality was much different, as these American colonies suffered from a constant shortage of coins. After all, London's policy at the time was to increase the amount of gold and silver in Britain and to prohibit its export anywhere in the world, including its own colonies!

As a result, the American colonies were forced to use “foreign” silver coins, primarily from the neighboring Spanish colony of Mexico.

The Spanish coin bore a face value of eight reales in the Spanish system (real meaning royal in Spanish).

Whilst the Americans would reject the terms real and peso as names for their new currency, the concept of eight would stick; the dollar would often be referred to as eight bits or pieces of eight. To this day, the expression “two bits” still refers to a quarter.

The most common Spanish coin at the time was the pillar dollar, which was so named because it showed the Eastern and Western hemispheres with a large column on either side representing the Pillars of Hercules.

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The early American colonists also indirectly popularised paper banknotes.

As historian Jack Weatherford explains, the Massachusetts Bay Colony began printing the first paper money in North America as early as 1690.

The grandfather of paper money was undoubtedly Benjamin Franklin, who developed an early interest in paper money and wrote his first “pamphlet” on the topic at the age of 23.

In 1729, he published “A Modest Enquiry into the Nature and Necessity of a Paper Currency.”

He operated a printing press in Philadelphia, printing cash on behalf of the Pennsylvania colony (a service that often caused his newspaper, the Pennsylvania Gazette, to be late for delivery).

To this day, Benjamin Franklin's visage is honored on the highest denomination of the U.S. dollar, the $100 banknote.

However, colonial authorities in London were not pleased with such activity. They outlawed the use of paper money in New England in 1751 and extended the ban to the rest of the colonies in 1764.

In 1775, the U.S. Congress issued the Continental to finance the American Revolutionary War against Great Britain.

However, due to overprinting, lack of solid backing, and counterfeiting, it soon lost its value (thus the American expression “not worth a Continental”), and Congress stopped issuing it around 1780.

This entire experience with paper money was seen as a failure in the U.S., so much so that the U.S. printed no paper money for nearly a century afterward.

However, whilst many Americans were turned off by money, as they had lost so much of it during the war with the British, it was seen as a success by the rest of the world, who saw the Americans as having won their revolution by printing money.

But the mindset gradually changed with time.

The Americans adopted the decimal system in 1792 (pioneered by Russia around 1535) with the passage of the Mint Act, but the widespread use of paper banknotes required a user-friendly system.

Thankfully, Thomas Jefferson later devised the idea of calling one-hundredth of a dollar a “cent” (from the Latin “centum,” meaning hundred) and a tenth of a dollar a “dime” (based on the Latin “decima,” meaning one-tenth).

Alexander Hamilton elaborated further on the country’s monetary system in “The Report on the Establishment of a Mint,” leading to the Coinage Act of 1792, making the U.S. coinage system the first wholly decimal monetary system on earth.

In1861, Congress authorized the Department of the Treasury to issue non-interest-bearing Demand Notes to finance the Civil War.

These notes earned the nickname “greenbacks” because of the green ink on the back, a basic anti-counterfeiting measure used to prevent photographic copies and fakes since cameras of the time could only take pictures in black and white.

After the Treasury issued Demand Notes, Congress authorized a new class of currency in 1862 known as “United States Notes” or “Legal Tender Notes,” which replaced Demand Notes (and continued to circulate until 1971). And this is the U.S. Dollar that we know today!

There are more chapters in the history of the U.S. Dollar that I’ve covered in previous issues of this newsletter, from the confiscation of gold in 1933 to moving away from the gold standard in 1971.

Whilst the future of money is very exciting, who said the history of money couldn't be fun as well!

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Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only, and none of its content should be construed as investment or financial advice of any kind. 

Who is Henri?

Henri Arslanian is the co-founder and managing partner of Nine Blocks Capital Management, an institutional-grade hedge fund focused exclusively on digital assets, with a market-neutral crypto fund focused on generating alpha from inefficiencies in crypto markets using relative value, arbitrage, and quantitative strategies. 

Henri was previously a partner and global crypto leader at PwC. In that role, he advised many of the world’s leading crypto exchanges, investors, financial institutions, and tech firms on their crypto initiatives and numerous governments, regulators, and central banks on crypto regulatory and policy matters.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author, and is regularly featured in global media, including Bloomberg, CNBC, CNN, BBC, The Wall Street Journal, The Economist, and the Financial Times. 

Henri was named by LinkedIn as one of the 2022 global Top Voices in Finance and is the host of the CryptoCapsules™ social media video series as well as The Future of Money podcast and newsletter.