By now, everyone has heard of the plan by the U.S. Department of Treasury to incorporate the portrait of a woman in the upcoming redesign of the $10 bill. While it will not be a first on American money (Martha Washington's visage graced the $1 silver certificate from 1886 through 1896), the announcement was nonetheless welcome and overdue.
While all of our bills undergo periodic updating to include additional security features, the publicity attendant to the reworking of the ten spot provides a unique opportunity to reflect upon the fascinating history of our money.
Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.The use of precious metals (and other dear commodities like cattle, shells and beads) as a store of value is nearly as ancient as civilization itself. But the adoption of printed bills or notes with no intrinsic worth of their own to represent value is a relatively modern development. In America, IOUs representing business loans circulated during the colonial period as a type of currency, later followed by the issuance by the colonies of notes redeemable in silver or gold. The first official printing of paper money occurred in 1775, in an effort by the Continental Congress to finance the Revolutionary War. Ultimately these "Continentals" became nearly worthless due to widespread counterfeiting and loss of faith in their value.
From the adoption of the constitution up until the Civil War, a mélange of notes was issued by local banks, each with its own design and denomination and backed by specie or holdings of U.S. Treasury bonds. At one point, more than 8,000 separate U.S. banks were printing notes in denominations ranging from 1/2 cent to $20,000.
It was the onset of the Civil War in 1861 that led to the issuance of the first standardized, nationwide currency backed by the full faith and credit of the U.S. government and considered "legal tender" for all monetary transaction in America. The green ink on the reverse side of the notes lent the name "greenback" to the dollar, a moniker that survives today. All currency notes issued by the federal government since 1861 are still considered legal tender and remain fully valid.
Counterfeiting has always been the principle threat to paper money throughout history. The Secret Service was created in 1865 as a branch of the Treasury Department responsible for maintaining the integrity of the currency. This mission remains one of the principal mandates of the Secret Service today.
The Federal Reserve Act of 1913 created the modern central banking system and transferred responsibility for maintenance of the currency to the Board of Governors of the Federal Reserve System. Paper money issued since 1913 is known as Federal Reserve Notes. In 1929, as a cost reduction measure, the physical size of the currency was reduced by 30 percent to its present familiar size.
While paper notes originally represented an equivalent quantity of specie (gold or silver), U.S. currency no longer has any direct connection to any physical commodity. Franklin Roosevelt got the ball rolling during the Bretton Woods conference in 1944 by fixing the price of gold at $35 per ounce; President Nixon officially cut the cord in 1971 and removed any dependence of the dollar on the price of gold. Today, the greenback is strictly a fiat currency whose only backing is the full faith and credit of the U.S. government.
Which brings us full circle back to the $10 bill. Interestingly, the new bill will include not only the portrait of a woman (yet to be named), but additional tactile features to identify the denomination to consumers with visual handicaps. Long overdue and entirely in keeping with the rich and venerable tradition of U.S. currency.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.