This Day In History: July 6

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On July 6, 1785, the Continental Congress establishes the dollar as the official currency of the newly established United States, paving the way for a national monetary system.

The fledgling nation had just won the Revolutionary War, and the creation of a national currency marked one of its first steps in stabilizing and establishing its newly independent economy.

Prior to the war, England would not supply the colonies with a sufficient number of pence and shilling coins, It also would not allow the colonies to create their own coin currency. So the colonists would often use coins from other European nations, including Spain, France and Portugal, or they would barter for goods using such things as Indian wampum or tobacco.  

To get around Britain’s rules, the Massachusetts Bay Colony started producing its own paper currency in 1690. Other colonies followed Massachusetts’ lead and produced paper notes, which were then used for the exchange of goods or payments within the state or colony that issued it. Among other things, these notes—called bills of credit—were issued as mortgage loans to residents of the individual colonies. As collateral, the residents pledged their lands.

While the issuance of paper currency helped alleviate the coin shortage, it also created confusion since it was difficult to determine the true value of the various paper and coin currencies in circulation. It also gave rise to a rash of counterfeiting

It wasn’t until 1775 that the Continental Congress issued a universal paper currency to help fund the Revolutionary War. But the currency, which was issued in the form of $2 notes known as “Continentals,” quickly became worthless due to a lack of solid backing by the government.

After the war, the new nation sought to stabilize its economy. In 1785, it established the dollar as America’s new monetary unit, basing it on the widely used Spanish silver dollar. (And the dollar sign was adapted from the Spanish-American symbol for the peso.) The founding fathers then adopted a base-10 monetary system, in which ten cents make a dime and ten dimes make a dollar.

It took decades before the dollar was fully adopted and embraced in the U.S., but today, it evolved into one of the most widely held currencies in the world.