The first paper money issued in the United States was by the Massachusetts Bay Colony in 1690, considered the first authorized by any government in the Western world. However, these were more akin to bills of credit or IOUs. The first official paper currency issued by the U.S. federal government was called “demand notes” or “greenbacks,” and it was introduced during the Civil War in 1862. This was when paper money became a more common form of currency across the country. In 1913, with the passing of the Federal Reserve Act, Federal Reserve Notes were established as the main form of paper currency, which is still used today.
However, this paper money was not entirely detached from gold. The transition from gold coins to a fiat currency (inconvertible currency established as money by government regulation) took place later.
In 1933, during the Great Depression, President Franklin D. Roosevelt suspended the gold standard, which allowed citizens to trade paper money for gold. This move was intended to discourage hoarding, stimulate economic recovery, and prevent runs on banks seeking gold.
Finally, in 1971, President Richard Nixon abandoned the gold standard by ending the foreign exchange of dollars for gold, marking the complete transition to the fiat money system still in use today.
