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