History of American money can be traced back to the times of colonial America. The Continental Congress had made the use of dollar legal even before American independence. This dollar was based on Spanish milled dollars that were prevalent in the economy of colonial America. The Spanish milled dollars were a set of 8 coins and were principally based on Spanish economy.After the formation of United States of America and independence of colonies, the Congress recognized and symbolically made dollar, the official currency of United States on 8th August 1786. A systematic research and set of proposals later, the Congress and founding fathers of United States established the system of dollars and evaluated it's international market value. Under the leadership of Alexander Hamilton, the dollar system was integrated in United States economy with the approval of Coinage act of 1792.
The United States dollar during this time were backed by deposits of gold and sliver. It meant that this currency was non-fiat money, and gold and silver worth value of the said denomination was collected and stored as an asset, before circulating the actual bank notes and coins in the economy. Upon the passing of 1878, Bland-Allison Act, the Congress authorized use of silver standard legal tender coinage in minting. Due to this act, monetary value of minted coin remained the same. Irrespective of the actual weight and value of metal that was used to make the coin, Silver was stored as an asset by the government. However, its market value did not affect the denomination and valuation of the dollar that was in circulation. The silver coinage had to be replaced with gold, due to constant fluctuations of the cost of silver.
The Gold Standard Act was passed in the Congress on 14th of March 1900. This act made gold, the standard legal tender coinage of the United States. During World War I, due to unstable demand-supply relation in European market, corporations based in United States began to suffer financially. The treasury department eased the standards, so that the corporations could stop trade with European nations and could also pay off loans taken from European banks and governments. During the course of the war, United States refrained from very active participation in the war. It was the only nation to maintain the gold standard from 1915-1917, which was the era of the worst economic conditions. The gold standard was relaxed and suspended again during the great depression, to help business organizations recover heavy losses. The standard was however applicable for international trade, even during the depression.
The monetary system of United States was changed in 1963, when the concept of fiat money was introduced in the economy. According to the fiat system, the currency was not backed by storage of resources such as gold and silver. The non-fiat money was bought back by the treasury department in 1868. The new bank notes that were distributed on the basis of fiat money are termed to be a legal tender by the treasury department.
Today even after many changes, United States legal tender money has proved to be a success and is circulated, monitored and distributed by the treasury department. The bank notes are known as green backs due to their distinctive green color. There are 5 denominations of the notes that range from $1 to $100. The current fiat system has become so successful and wide spread, that it is used as a measurement of currency by many nations to establish value of their own currency in international market. For example: $1= Rs.48.065, $1= £0.6109 (current values).
