Velvet Perry, 12, of Colorado Springs, Colo., for her question:
HOW DID WE ESTABLISH OUR MONETARY SYSTEM?
During America's Colonial days there wasn't much need for money. Each family made most of the things it needed, and the family members bartered with other families for the supplies they needed. Sometimes the Colonists used Indian wampum as money. Wampum was strings of beads made from the inside of shells. The English government opposed the making of coins in the Colonies.
During the Revolutionary War, many notes called continentals were issued by the Continental Congress. The value was spelled out on the basis of Spanish silver coins called dollars.
New states also issued a variety of copper cents. Private individuals also made and circulated unofficial coins, including silver shillings and pence as well as gold doubloons.
In 1792 the Coinage Act established the nation's first mint. The act also set up the first system of money in the United States. Congress gave the American dollar the same value as the Spanish dollar. The new setup included gold and silver coins and also selected the decimal system to count money units.
Congress passed a law in 1793 that made it legal to use foreign coins as part of the exchange. In 1857, however, Congress passed a law removing foreign coins from circulation.
The National Bank Acts of 1863 and 1864 established a system of national banks. These banks had the power to issue bank notes backed by government bonds. In order to keep the notes from losing their value, the government limited the number that could be issued. As a result of this, there were often shortages of paper money.
By the middle of the 1970s, the United States had about $8 billion in coins circulating, with about $65 billion in paper money. Also by the mid 1970s between 75 and 80 percent of all payments were made by check rather than with cash. More than $220 billion was deposited in bank checking accounts by businesses and individuals.
Controls are set by the government over ,the amount of coins and paper money created. Congress also has the power to regulate the amount of checking deposits in the bank, with the regulatory responsibility being passed to the Federal Reserve System.
Two divisions of the Department of the Treasury are in charge of the manufacture of currency. The Bureau of the Mint makes coins in Philadelphia and Denver and from time to time at the assay office in San Francisco. The Bureau of Engraving and Printing in Washington, D.C., is responsible for the production of all paper money.
A nation's economy is based on a delicate money balance. If individuals and businesses do not spend enough money, depression and unemployment may result. If they spend too much, inflation may occur.