Rob Hajduch, Principal Credit Analyst
On April 2, 1792, Congress passed the Coinage Act, which simultaneously established the first federal mint in the United States and a decimal-based national currency. The new currency was universally in the form of coins, with the larger denominations ($10 "eagle" / $5 "half eagle" / $2.50 "quarter eagle") struck in gold. The smaller denominations were struck in silver, with Congress designating the largest silver coin as the "dollar." The smallest coins - the half cent and cent - were struck in copper.
Given the ubiquitous presence of the U.S. dollar in international trade today, its adoption by foreign countries as their own official or de facto currency and its status as the primary reserve currency globally, it is easy to take its economic influence for granted. However, the story leading to its adoption and subsequent evolution is complex and full of historical twists and turns that begins with the discovery of a lode of silver near the Bohemian town of St. Joachimsthal in the 15th century. Coins minted from silver mined near the town were known as "Joachimsthaler" and their standardized weight and purity represented something of a revolution for national currencies in Europe. It did not take long for other countries to begin minting equivalent currencies to facilitate both internal and external trade, including the Netherlands which issued a coin known as the "leeuwendaalder." Similar coins eventually came to be known as "thalers" and "daalders" in popular vernacular.
More or less simultaneously, enormous silver lodes were discovered in Spanish colonies in Bolivia, Peru and Mexico that would produce something on the order of 85% of the world's silver over the following four centuries. Spain began to mint a new coin from this silver that was similar in purity and weight to existing thalers then circulating. Known as the "peso de ocho" (piece of eight) it - along with the Dutch daalder - came to circulate globally as a result of the two kingdoms' colonial holdings and grip on the trade routes to the East Indies.
A persistent shortage of British currency in the U.S. colonies resulted in a large percentage of commerce being conducted in the Dutch and Spanish currencies. Both were viewed as equivalent and came to be universally dubbed "dollars." So pervasive was their usage in the newly independent United States that Congress adopted the term "dollar" for the national currency more or less out of default. In its formative years, the limited capacity of the U.S. Mint to produce coins resulted in Dutch and Spanish coins remaining in circulation side-by-side with U.S. currency for the following six decades, with all three labelled dollars. The Coinage Act of 1857 ended the status of foreign coins as legal tender in the United States and holders were required to exchange non-U.S. coins for domestically produced currency at the Treasury.
Today, a vestige of Spanish pieces of eight survives in popular jargon relating to U.S. currency. As the coin was minted in a single denomination and its inherent value was rooted in its purity and weight, the only way to practically make change in the course of completing a transaction was to physically cut the coin into pieces. The most common division was eight pie-shaped wedges called "bits" with two bits equivalent to a quarter of the coin's value.
Business Insider, Here's the Surprising 500-year History of the American Dollar, Drake Baer, February 10, 2015
Encyclopedia Britannica Online, Coin, Britannica.com
Pacific Standard, A Brief History of the Dollar, Michael Scott Moore, June 14, 2017
United States Mint, History of U.S. Circulating Coins, usmint.gov
United States Mint, History of the U.S. Mint, usmint.gov