2. Yuan Dynasty
Fiat currency first emerged when the Yuan
Dynasty of China started to print paper money
without restrictions on duration, in order to
fund their reign in the absence of sufficient
specie. This led to hyperinflation. Eventually,
by the mid-15th century, the new Ming Dynasty
stopped printing paper money altogether in
order to contain both hyperinflation and
economic expansion.
3. The West
The first instance of fiat currency in the West
came about when the issuing of paper money
in Sweden was taken over by the
Scandinavian country’s government. This
happened in the latter half of the 17th century.
Although paper money was inconvertible to
specie by 1745, the government mandated its
acceptance.
4. American Colonies
In the Thirteen Colonies, an early form of fiat
currency was known as bills of credit. Notes
were produced by provincial government, with
the promise that holders would be allowed to
pay taxes with those notes. The notes were
issued for the purpose of paying current
obligations and were called by levying taxes at
a later point in time. They were circulated
between individuals in non-tax transactions
because they were denominated in the local
unit of account.
5. American Colonies
The colonies where bills of credit were most
prevalent were Massachusetts, Pennsylvania
and Virginia. The money was sold at a
discount of silver, which was then spent by the
government. It expired at a pre-agreed later
time. Other colonies that had this fiat currency
included New England and the Carolinas,
where the bills of credit depreciated more
dramatically than anywhere else.
6. American Colonies
As colonial powers continued to introduce fiat
currencies backed by taxes such as poll taxes
or hut taxes, a cycle of deflationary hard
money followed by inflationary paper money
continued repeatedly for the majority of the
18th and 19th centuries. The reason why the
authorities kept introducing fiat currencies
backed by taxes was because they needed to
mobilize economic resources in their new
possessions, in the context of a transitional
arrangement, at least.
7. American Colonies
The Federal Government introduced United
States Notes during the course of the
American Civil War. These represented a form
of paper fiat currency that came to be
commonly known as greenbacks.
8. World War One and Beyond
Although most governments had a legalized
monopoly on bank notes and the legal tender
status thereof by 1914, most of them still
promised to redeem notes in specie on
demand. However, as the war wore on,
authorities moved to suspend redemption in
specie due to the high costs of the military
conflict and the accompanying policies of huge
expansion.
9. World War One and Beyond
Due to a lack of direct penalty for doing so,
governments were not directly responsible for
the economic effects of printing more money.
This inevitably led to hyperinflation, perhaps
most notably in post-war Germany.
In consequent attempts to regain economic
stability, pure fiat currency was combined with
a form of convertibility via gold bullion
exchange.
10. World War One and Beyond
This was done with the purpose of anchoring
currency to gold bullion under the Bretton
Woods system. This system was established
in 1945, after an agreement was made at the
Bretton Woods Conference to fix the value of
35 US dollars to one troy ounce of gold and
then peg other currencies to the US dollar at
fixed rates. This system lasted until 1971,
when it collapsed as a result of President
Richard Nixon ending the convertibility of the
US dollar for gold.
