Continental Currency

Definition

Continental Currency was the paper money issued by the Continental Congress during the American Revolutionary War to fund military operations and support the colonies' war efforts. This currency was significant as it represented an early attempt by the American colonies to establish a unified financial system, even though it eventually suffered from rampant inflation and loss of public trust, which ties into the broader themes of colonial currencies and the evolution of fiat currency.

5 Must Know Facts For Your Next Test

1. Continental Currency was first issued in 1775 and was meant to finance the Revolutionary War, but it quickly became devalued due to overproduction and lack of backing.
2. The phrase 'not worth a continental' emerged as a common expression, reflecting the public's loss of faith in the currency's value.
3. Despite its failures, Continental Currency marked an early step toward creating a national currency that would unify the colonies economically.
4. The issuance of Continental Currency was one of the earliest examples of a fiat currency in America, where value is derived from government decree rather than intrinsic value.
5. Eventually, Congress discontinued the use of Continental Currency in 1780 due to rampant inflation, leading to a shift towards a more stable financial system in the post-war period.

Review Questions

• How did the introduction of Continental Currency reflect the economic challenges faced by the American colonies during the Revolutionary War?
  • The introduction of Continental Currency was a direct response to the financial strains imposed by the Revolutionary War. As the colonies struggled to fund military efforts against Britain, the Continental Congress issued this paper money to provide necessary resources. However, due to over-issuance without sufficient backing, this currency quickly lost value, highlighting the economic instability and challenges that arose during this critical period.
• What were the consequences of issuing Continental Currency for both the short-term financing of the war and long-term monetary policy in America?
  • In the short term, issuing Continental Currency allowed Congress to raise funds quickly for military expenses. However, this reliance on unbacked paper money led to rampant inflation and a significant depreciation in value. In the long run, the failures associated with Continental Currency influenced future monetary policies in America, emphasizing the need for a stable national currency that could foster trust and economic growth.
• Evaluate how Continental Currency serves as an example of early fiat currency in America and its implications for future monetary systems.
  • Continental Currency exemplified an early form of fiat currency in America, relying solely on government authority rather than physical commodities like gold or silver. This experiment with paper money underscored the complexities involved in establishing trust in a currency not backed by tangible assets. The lessons learned from its failures paved the way for more robust monetary systems in later years, as leaders recognized that successful currencies needed public confidence and a solid backing strategy.

Related terms

Colonial Script: A form of paper money issued by individual American colonies prior to independence, often backed by land or future taxes, used to facilitate trade and commerce.

Currency Depreciation: The reduction in the value of a currency in relation to others, often resulting from inflation or lack of confidence in the issuing authority.

Greenbacks: Paper currency issued during the American Civil War by the Union government, which was also subject to depreciation but represented a later example of fiat currency.