DescriptionFrom the founding of the USA until the Civil War the government mostly didn’t issue paper money, leaving states free to do that if they wanted to. The dominant model in the first half of the 19th century was to allow private banks to issue banknotes. Not infrequently the notes were not backed by reserves or anything else. Many of those banks went broke and their paper money lost its value until 150 years later, meaning now, when “US obsoletes” or “broken bank notes” are collectors’ items. The basic reference is Obsolete Banknotes, by Haxby.Paper money, meaning the promise of a government to pay a set amount, and the paper promise allowed to circulate at will, was probably first used in China in the 12th century AD. At that time the merchants and governments of Europe were just writing letters to each other about what they owed.
