During the Revolutionary War, two things almost led to the defeat of the struggle for American independence. One was the inadequate system of constitutional government, and the other was unsound money.
Congress issued about $240 million in “Continentals”–referring to money of the Continental Congress. It was understood that the money would be redeemed in gold or silver by the states after the war.
The states thought this was a great way to manufacture money so they issued vast quantities of their own paper currency.
The British saw what was happening, so they printed up bales of counterfeit “Continentals” and used them to buy supplies from Americans.
Before long, confidence in the Continentals had sunk so low that by 1780 they were not even worth one cent. No further paper money was issued by the United States for over eighty years.
The American market had already accepted the Spanish dollar as its basic unit of value. It was minted in Mexico and called a “piece of eight,” or a peso. The words Spanish peso are said to have been abbreviated into an S and a P with one written over the other. This was further abbreviated to a “$” sign.
The word dollar originally came from a Bohemian word thal, meaning “valley.” A silver coin was minted in a certain Bohemian valley and became known as a “thaler,” which was transliterated into English as a “dollar.”
In the 1700s, the Spanish came out with a silver coin of almost exactly the same size and weight as a thaler. It represented eight Spanish gold “reals” and was therefore called a “piece of eight.” In the marketplace merchants referred to this as the “Spanish dollar.” However, to make change, they would cut a dollar into eight pieces or “bits.” These began to be called two bits for a quarter, four bits for fifty cents, and six bits for seventy-five cents.
In 1785, two years before the Constitution was written, the Congress accepted the Spanish dollar as the official unit of value for the United States and determined that all foreign coin would be evaluated in terms of the Spanish dollar.
In 1786, the year before the Constitution was adopted, the Board of Treasury fixed the silver weight of the adopted dollar at 375 and 64/100s grains of fine silver. The value of gold coins or any other coins was to be calculated in terms of the silver dollar of this weight and fineness.
