Financial History 145 Spring 2023 | Page 18


The Invention of Modern Currency in 1690 Massachusetts

By Dror Goldberg
Modern currency is paper money and token coins that are legal tender for debts and taxes but have no relation to gold . This has been the physical and legal character of our currency since 1971 , when President Richard Nixon suspended the right of foreign central banks to convert dollars they held into gold . Although paper currency is declining in favor of electronic payments for purchases , it is still the legal foundation of the monetary and financial system , most of which consists of promises to pay “ dollars .” As far as courts are concerned , this means legal tender currency , which was invented in 1690 Massachusetts .
This is not only “ one of history ’ s great inventions ,” as economic historian Richard Sylla has described it ; it is perhaps the most consequential financial invention for which America has received no credit . The story of that invention also has relevance for some of the contentious monetary issues of the 21st century : Bitcoin and other cryptocurrencies , Modern Monetary Theory ( MMT ) and the structure of the Federal Open Market Committee .
Paper money per se is older than Massachusetts . A millennium ago , China invented it , and there were later isolated cases in Western civilization . Even in America before 1690 there were paper currencies , during military emergencies
Harvard Art Museums
Portrait of Councilor Elisha Hutchinson , head of the Massachusetts Open Market Committee .
16 FINANCIAL HISTORY | Spring 2023 | www . MoAF . org