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<p>[QUOTE=&quot;Numbers, post: 672983, member: 11668&quot;]It depends on the time period you&#039;re talking about.&nbsp; During the Civil War and the decade or so after it, the government was getting pretty near broke, and specie payments were suspended--meaning that unless you had a gold certificate, you weren&#039;t getting gold from Uncle Sam.&nbsp; As you might expect, gold and gold certificates did trade at a premium; people still spent them, but they&#039;d buy several percent more than other forms of paper money would.&nbsp; Maybe a $20 gold coin would be worth $25 in U.S. Notes, or some such ratio (I don&#039;t remember exactly how wide the spread got).</p><p><br /></p><p>At the time, calculations like this were pretty common for all sorts of money.&nbsp; Private currency issues, from banks and railroad and all sorts of other businesses, were often discounted by various percentages, depending upon how well-known, financially sound, and local the issuer was.&nbsp; Notes issued by some unknown bank in a different state were likely to be accepted at a steep discount if at all, which made it a pain to spend money while travelling; that&#039;s one of the reasons why a uniform federal currency seemed like a good idea.</p><p><br /></p><p>U.S. Notes were one step toward that uniform currency, though they started out as more of a wartime emergency measure, and were kept on after the war when people liked the other benefits they provided.&nbsp; National Currency was another step: these notes were a lot like the older private bank notes, being issued by individual local banks--except that in order to issue Nationals, the bank had to allow its books to be inspected by the government, to ensure that it was sound.&nbsp; In exchange for that access, the government agreed to guarantee the bank&#039;s notes in the event that the bank should fail, and the government also printed all of the notes so that the designs were standardized all over the country.&nbsp; The public therefore had *two* reasons to trust these notes, since both the local banker and Uncle Sam stood behind them, and so they circulated widely.</p><p><br /></p><p>Once the government got its finances back in order after the war, Congress passed a law resuming specie payments.&nbsp; A year or two in advance, they set a date (was it January 1877? I forget) and said that from then on, all U.S. currency would be freely exchangeable for gold.&nbsp; Some people didn&#039;t believe the government would be able to stick to its word, but most people did--and so it worked.&nbsp; Soon after the government started paying out gold again, and there wasn&#039;t a mad rush to cash in all the paper for gold, everyone realized that the paper was just as good as gold now, and all federal notes traded at face value from then on.&nbsp; Indeed, the Treasury&#039;s gold holdings began to *increase* almost immediately, as banks decided that they&#039;d rather stock their vaults with paper that took up less space than physical gold.</p><p><br /></p><p>So why was there still a need for different currency types?&nbsp; Partly inertia, and partly politics.&nbsp; Much of the political part was centered around the silver-mining industry, which had a lot of clout in a lot of western states.&nbsp; In the late 1800s, so much silver was being mined that its value was falling rapidly, relative to gold.&nbsp; So the silver barons convinced Congress to order the Mint to produce silver dollars by the millions, even though there wasn&#039;t a need for them in circulation.&nbsp; That sucked up a lot of the excess silver and stashed it away in Treasury vaults, propping up the price.&nbsp; But what was Uncle Sam supposed to do with millions of unwanted silver dollars?&nbsp; The Treasury&#039;s answer was to print silver certificates in enormous quantities--and in order to keep them in active circulation, they were mostly issued in small denominations.&nbsp; This is why silver certificates rather suddenly shifted from the early printings of mostly high-denomination notes (analogous to gold certificates) to the 1886-and-later series of mostly $5&#039;s and lower.</p><p><br /></p><p>The silver industry got an even bigger handout in the form of the Coin Notes of 1890-91.&nbsp; That time, Congress required the Treasury to use Coin Notes to buy silver at the standard (by now unrealistically high) value, and to redeem these notes &quot;in coin&quot;.&nbsp; But they didn&#039;t say it had to be *silver* coin, and that was the trick: the silver industry received its Coin Notes from the Treasury, and turned right around and redeemed them in *gold* coin.&nbsp; They thus got far more gold for their silver than they could&#039;ve in the open market.&nbsp; The whole scheme was so outrageous that there&#039;s a decent chance the Treasury would&#039;ve gone bankrupt in a few years; but President Cleveland, who wasn&#039;t in the silver barons&#039; pocket, put a stop to it when he took office in 1893 (which is why Coin Notes went out of production not long after they got started).</p><p><br /></p><p>The Federal Reserve came along in 1913, the idea being that its Federal Reserve Notes would gradually replace the National Bank Notes.&nbsp; This would centralize the authority for a large chunk of the currency issues, and also remove the need for the Treasury to print and sort notes bearing the names of thousands of small banks.&nbsp; At the same time, the existence of twelve regional FRBs (rather than just one central bank) would still carry on something of the Nationals&#039; tradition of locally issued currency.&nbsp; The requirements for issuing FRNs were somewhat stricter than the rules governing the National Banks, too, rendering the currency even more solid.</p><p><br /></p><p>Then World War I hit, and a large portion of the Treasury&#039;s hoard of silver dollars got melted down to help out our allies (mostly the British in India, I think).&nbsp; That created a shortage of small-denomination currency, since most of it had been silver certificates.&nbsp; Needing to get more small bills into circulation quickly, Congress authorized the Federal Reserve to issue some currency under the looser rules that normally applied to the National Banks.&nbsp; These are the Federal Reserve Bank Notes, which were only printed for a limited time in the &#039;teens and &#039;twenties, until the Treasury had replenished its silver stockpile.</p><p><br /></p><p>When the Depression came along, and a quick infusion of currency was needed again, somebody realized that the law allowing FRBNs was still on the books, and so another brief printing of those was made in 1933 (dated 1929, since old plates were used due to the need for haste).&nbsp; This time, they weren&#039;t especially skewed toward low denominations, though....</p><p><br /></p><p>As has been noted, gold and gold certificates were recalled in 1933, as another Depression measure--the Treasury feared that people would lose confidence in the paper currency, and start to trade gold at a premium over paper again, so they took a rather drastic step to prevent that from happening.&nbsp; National Currency went out of print in 1935, completing the process that had started with the Federal Reserve Act in 1913.</p><p><br /></p><p>For many years, the USNs, SCs, and FRNs existed in harmony, but then in the &#039;60s the price of silver started to rise, until it once again looked like we were going to see different currency types trading at different values.&nbsp; To prevent this, the SCs were discontinued, and a $1 FRN was introduced for the first time to fill the need for small-denomination currency.&nbsp; Perhaps remarkably, the Treasury did continue to redeem SCs for silver even after the silver price made that a very bad bargain for Uncle Sam.&nbsp; Many individuals went around buying up SCs at $1.50 on the dollar, because they could be redeemed for silver worth even more.&nbsp; Clearly it would not have worked to try to keep SCs in circulation under such conditions; it&#039;d been many decades since the public had been accustomed to accepting different forms of currency at different rates....&nbsp; Redemption in silver finally ended in 1968, but the deadline date was announced a year in advance, and pretty much everybody who wanted to cash in their SCs had plenty of time to do so--the reason we still have so many around is that lots of people decided to hoard them as potential collectibles instead of redeeming them.&nbsp; (Bad move from a financial point of view, but it gives us lots of cool notes to collect for relatively cheap these days.)</p><p><br /></p><p>At that point, the ratio of FRNs to USNs in circulation was so large that the USNs clearly didn&#039;t serve much purpose any more.&nbsp; So the Treasury gradually began to shift away from circulating USNs: they started printing them only in the $100 denomination, to minimize the number of the notes that&#039;d have to be printed and sorted, and it appears that they tried to keep even these $100&#039;s &quot;circulating&quot; only in a technical sense, with many of them not reaching the public.&nbsp; Congress finally got around to de-authorizing them in 1994, so that the Treasury could quit bothering with them entirely.</p><p><br /></p><p>And that&#039;s how we got to have nothing but FRNs.&nbsp; Or at least, that&#039;s the broad outline; I suspect I got a few details wrong in there, since I don&#039;t have my books handy just now.&nbsp; It&#039;s a fascinating subject to read up on, if you&#039;re interested in that sort of thing....[/QUOTE]</p><p><br /></p>

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