Why Does the U.S. Need Paper Currency?

Paper money is cheap to print and easy to carry.

Dependency on paper currency evolved in the 19th century due to banking and economic problems. Although initially backed by gold and silver, paper currency is now backed by the federal government and global economy.

Why Paper Currency?

The main reason we use paper currency is simply that it is cheap to print and easy to carry.

History

Before the Civil War, U.S. currency was issued by state-approved banks, which created corruption and instability. After the Civil War, the U.S. Treasury began to issue treasury notes to standardize the currency and stem corruption.

Federal Reserve Act of 1913

Due to financial panics in 1893 and 1907, the Federal Reserve System was created to regulate currency and further stabilize the economy.

Gold Standard

Until the Great Depression, treasury notes were backed by gold and silver.

Great Depression and End of Gold Standard

The "gold standard" led to the devaluation of goods and services that caused the devaluation of gold and created a vicious cycle. The Great Depression of the 1930s effectively killed the gold standard as the hoarding of precious metals created instability and bank failures.

"Fiat" Currency

In 1973, the United States finally ended all ties to the gold standard. Money is now "fiat" currency, and it's value is determined by the federal government.

References

• The gold standard and the Great Depression
• The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison
• A Brief History of Our Nation's Paper Money