Bitcoin and United States Notes

There was once a new currency that allowed for anonymous transactions and was issued in a fixed total amount in order to stabilise its value.

However, it was a fiat currency, not pegged to gold or another fixed asset. Not surprisingly this novel currency was highly volatile in value, constantly rising and falling. Its introduction caused a sensation among the public and much political debate.

I am not talking about Bitcoin or cryptocurrency here but the US dollar. In particular, I am referring to the United States Note (USN) first issued in 1862. 

Created by Congress in order to fund the Union effort in the US Civil War, the USN was the United States’ first fiat currency. Issuances were dictated by Congress, which set the total amount of the currency outstanding. However, its value was basically tied to faith in the Government, not gold or silver as in the past. As a result, its value fluctuated sharply, according to Union victories and defeats in the Civil War.

The USN’s value stabilized after the war, but it did reach parity with gold dollars until Congress lowered the total amount of United States Notes outstanding and pegged the notes to gold in 1879. USNs would continue to be part of the US money supply until the 1970s.

This very brief summary points out that historical precedents exist for current cryptocurrency problems and that monetary history may point a way to new solutions.

A guest blog by historical consultant on money and finance, Franklin Noll

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