Archive for February, 2009

The History of the Paper Dollar

Saturday, February 28th, 2009

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The Massachusetts Bay Colony was the first of the thirteen colonies to issue permanently circulating banknotes in 1690. The reason behind this was because the paper could be more readily printed and circulated than gold coin. Many of these early bills were marked “Tis Death to Counterfeit.” In the early 1700s, each of the thirteen colonies had issued their own banknotes called “colonial script.” 1789 brought about the First Band of the United States which issued fixed denominations and printed banknotes until 1811 when it closed. From 1816 to 1841, the (you guessed it) Second Bank of the United States took on the responsibilities of printing banknotes.


The civil war, in 1861, needed to be funded with money that there just wasn’t enough of. In 1862, under Abraham Lincoln, the demand notes were issued, taking the place of interest bearing currency. Some necessities were added and changed in the next few years in order to stop counterfeiters. The new “Greenbacks” had an engraved Treasury seal and red and blue fibers in the paper which made them (at the time) very difficult to counterfeit which would cost the banks more money. Gold certificates were also issued against gold coin and bullion and were still in circulation until 1933 as well as silver certificates being issued for silver dollars until 1957. 1865 brought on the need for a Secret Service to police and control counterfeiters. How much was that really needed and how much of the US’s money was counterfeit? Oh only about one-third!


The one dollar United States Note was redesigned with a portrait of George Washington in the center and a vignette of Christopher Columbus. The back of the note also featured green and blue tinting. In 1880 the red floral design was added around the words “One Dollar” and “Washington D.C.” From 1890 to 1899 the gold and silver certificates were redesigned repeatedly in order to continue to make them harder and harder to be counterfeited. In 1910 the Department of the Treasury’s Bureau of Engraving and Printing took on all currency production functions including engraving, printing and processing. The Federal Reserve Act of 1913 created the Federal Reserve System. This means that the Federal Reserve became the central bank, regulating the flow of money. The Federal Reserve also became, to this day, the only authorized entity to issue Federal Reserve Notes (also known as, The Dollar(s)) which are the only U.S. currency produced and 99% of all currency in circulation!


“In God We Trust” No matter your religion, you know this phrase. This phrase was required by Congress in 1955 to be on every piece of currency and to this day, it still is. The last major change that was made was the microprinted security thread which was first introduced in 1990. It started with the $100 bills and the $50 bills, then eventually was introduced into the $20s, $10s, $5s, and $1s. Take a look at the money in your wallet. Now you know part of the long road traveled it took to get there.

Dollarization in Foreign Economies

Tuesday, February 10th, 2009

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dollarizationThe term “Dollarization” is when the inhabitants of a country use foreign currency along with (or in place of) their own domestic currency.  Dollarization is not only applied to usage of the United States Dollar, but generally to the use of any other country’s foreign currency as the accepted currency.  Some other currencies that are widely accepted outside of their issuing country of origin are:  the Euro, the South African Rand, the Russian Ruble, and both the New Zealand and Australian Dollars.  For today, however, we’ll focus primarily on the United States Dollar.

Dollarization has never really received much attention, due to the fact that it was generally believed to be politically impossible until 1999, when Jamil Mahuad (then President of Ecuador) attempted official Dollarization through economic reforms of Ecuador’s economy.  He declared a freeze on the country’s bank accounts, in an attempt to control inflation.  This economic plan ultimately lead to a military coup and Mahuad was ousted from office.

Since that time, there have been several other countries that have considered and implemented it as that country’s official policy.  El Salvador, for example, officially adopted the United States dollar in 2001.

Dollarization can fall into three basic categories:

1.  Official Dollarization:  The dollar is the only legal tender, officially adopted, and there is no local currency.  Some examples of countries where this has happened are:  Panama, El Salvador, and Ecuador.  Since their independence in 1903, for example, Panama has used only the United States Dollar exclusively.

This reduces the foreign country’s economic risk, providing a secure, stable economic environment.  These generally tend to be “developing” countries, with transitional economies, especially those with high inflation.

Amazingly enough, the United States Government does not have to provide approval to allow for another country to use its currency as legal tender.

2.  Unofficial Dollarization:  This occurs when private agents, generally in private transactions, prefer the foreign currency over the domestic currency. They might hold, for example, deposits in the foreign currency because of a bad track record of the local currency.  The practice might be widely accepted in that country, but is not classified as “legal tender” by the country’s government.

This can sometimes occur in countries where the United States Dollar has become more prevalent in circulation than the country’s own local currency.  This can be difficult to reverse.

3.  Semi-Dollarization:  Also known as a “Bimonetary System”, foreign currency is legal tender, but plays a role secondary to domestic currency.  Both the United States Dollar and the country’s own currency are used interchangeably.  Cambodia and Lebanon are two countries that practice this, for example.

There are both advantages and disadvantages to Dollarization for a country.

The advantages would be:  Fiscal discipline, resulting in lower inflation and financial stability.  This results in business being easier to conduct within that country, due to the resulting “peace of mind“.  The United States Dollar, for example, has never been devalued, nor has the United States’ notes ever been invalidated.  For a country that has had a past history of bank failures, devaluation and inflation, the temptation of adopting the United States Dollar is strong.

Some disadvantages would be:  Loss of control by the local government, as they lose power and control over inflation and fiscal policy.

It has been estimated that approximately 40-60% of existing United States currency circulates outside of the U.S.  This estimate has been further reinforced by the actions of the U.S. Government, which produced posters and pamphlets between 2003 and 2006, outlining the new look and anti-counterfeiting features of the “New” United States bills in an ASTOUNDING 24 LANGUAGES!

So, the next time you travel outside of the United States and encounter U.S. Currency, or even the next time you pull a Dollar out of your wallet, beaten and worn, looking like it has been “Around the World”, ask yourself:  Where has it been, What countries it has seen,  and how many different hands it has been exchanged through?

To find out where YOUR dollar has been, please visit our FREE Online Dollar Tracking System by clicking on “Enter a Dollar Bill” on the menu above!

The Color of Money: Why is a Greenback Green?

Monday, February 9th, 2009

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greenbackIn 1929, when the United States Bureau of Engraving and Printing introduced the small-size note, that we currently use today, green pigment was readily available in large quantities.  The color was relatively resistant to physical and chemical changes, and the color was viewed to be psychologically identified with the security and strength of the United States Government.

More importantly, this newly developed ink had protective qualities that could not be easily “lifted” from the note itself, which had been a favorite technique of counterfeiters in the past.  Since the mid-1800’s, it had been customary to print bills in black, with different slight variants of color.  When photographed, the color variants would show only in black, since early cameras could only photograph in black.  Not to be outdone, the counterfeiter soon discovered that they could remove the colored elements from the Bill, photograph the remaining black ink elements, make copies, and then overprint an imitation of the colored parts on the newly made copies.

A new solution was needed, and was quickly developed. The development, as well as the patent purchase for this ink, was by Tracy R. Edson, who later Founded the American Banknote Company, one of the same firms that produced the first currency used by the United States.

The faces of these early notes that were produced under contract were printed with the newly patented green tinted protective ink.

When printing with oil-base type inks, like the new “patent green,” it is not unusual for the color to show through to the opposite side of the sheet.  Therefore, the backs of early notes were printed in a darker shade of green to make the “strike through” of the tint less obvious.

The transition to the Treasury Department’s Bureau of Engraving and Printing was gradual, so the backs of the notes produced there during the intervening period were continued to be printed in green for the sake of uniformity.

Once the Bureau was in full-scale production, there was no reason to change the traditional color, and it was only logical that the practice continue.

Thus, the “greenback” was born!

The Bureau currently uses a technique called “Intaglio Printing,” which involves a revolving plate, filled with the grooves containing the design and wording.  These grooves are filled with ink and then wiped clean on the surface.  The paper is forced with approximately 20 tons of pressure onto the plate, picking up the ink contained within the finely recessed lines and grooves, leaving the surface of the newly printed currency with a slightly “raised” feel, while the reverse has a slightly indented feel.

Thanks to new technology introduced in the last few years, the newly redesigned, recently introduced United States Currency features some new splashes of color on the various denominations, using an “Optically Variable Ink” (or OVI).  This ink allows a shift in color variation when held at different angles.

A copy machine, for example, scans a document at ONE FIXED ANGLE, relative to the bill’s angle when placed on the glass, thus not picking up the color shift.

This ink, produced by a Swiss company called SIPCA, is not readily available and thus aids in deferring counterfeiting.

So, the next time you reach in your wallet and pull out a Greenback, you’ll know why it’s green!