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Chapter 11

Chapter 11. Money and Banking . Section 1. Use Guided Reading . Section 2 . Early Banking and Monetary Standards. Monetary Standards –the mechanism designed to keep the money supply portable, durable, visible and limited in supply . Privately Issued Bank Notes. Article 1 Section 8.

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Chapter 11

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  1. Chapter 11 Money and Banking

  2. Section 1 Use Guided Reading

  3. Section 2 Early Banking and Monetary Standards

  4. Monetary Standards –the mechanism designed to keep the money supply portable, durable, visible and limited in supply

  5. Privately Issued Bank Notes Article 1 Section 8 • After the Revolutionary War, people didn’t trust gov’t to print money. • Article 1 Section 8 gave Congress power to coin money • Federal gov’t did not print money until after Civil War

  6. Article 1 Sections 8 and 10 • 8) Congress shall have the power • To Coin money, regulate the value therof, and of foreign coin, and fix the standards of weights and measures. • To provide for the punishment of counterfeiting securities and the current coin of the U.S.A. • 10) No state shall…coin money, emit bills of credit; make anything but gold and silver coin a tender in payment of debts

  7. Growth of State Banking State banks were allowed to print money. Printed notes that people could exchange for silver/gold if they lost faith in bank Abuses in Banking -most banks originally only printed what they could back with gold/silver, but some printed more than what they could back (Wildcat Banks)

  8. Problems With Currency • 1) Each bank issued its own currency with different colors, sizes, denominations, etc. • 2) temptation to issue more notes than what banks could back was there • 3) Counterfeiting • By Civil War, US had more than 1600 banks issuing more than 10,000 types of currency

  9. http://www.history.com/shows/modern-marvels/videos/centralization-of-moneyhttp://www.history.com/shows/modern-marvels/videos/centralization-of-money

  10. The Greenback Standard • During Civil War, Union and Confederacy needed money. Congress authorized printing of money that was not backed by gold or silver. • Currency was declared legal tender • Dubbed greenbacks due to both sides being dyed green • 1862: Legal Tender Act: Congress authorized printing $150 million of United States notes (also not backed)

  11. National Currency • Greenbacks eventually lost some value and people stopped spending them; had to find another way to fund war • Solution=National Banking System made up of National Banks; issued national currency • Backed by government bonds; feeling of more security • 1865: fed. Government forces state banks to join by taxing private bank notes 10% • Paper money shifted from private to public supply

  12. Gold Certificates: paper currency backed by gold • Silver Certificates: backed by silver • Treasury Coin Notes: backed by gold and silver

  13. Abandoning the Gold Standard • People tried to cash in during Great Depression and gov’t feared it didn’t have enough gold to back it • Gold Reserve Act was passed and citizens and banks had to turn gold and certificates in • Country got on inconvertible fiat money supply

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