On December 10, 1690, a failed attack on Quebec and subsequent near-mutiny force the Massachusetts Bay Colony to issue the first paper currency in the history of the Western Hemisphere.
France and Britain periodically attacked each other’s North American colonies throughout the 17th and 18th Centuries. In 1690, during one such war, Governor William Phips of Britain’s Massachusetts Bay Colony made a promise he could not keep. After leading a successful invasion of the French colony of Arcadia, Phips decided to raid Quebec City, promising his volunteer troops half the loot in addition to their usual pay. Soldiers were typically paid in coins, but shortages of official currency in the colonies sometimes forced armies to temporarily issue IOUs—in one case, in the form of cut-up playing cards—which troops were allowed to exchange for goods and services until receiving their actual pay. Despite Phips’ grand promise, he failed to take the city, returning to Massachusetts with a damaged fleet and no treasure.
With a shortage of coins and nothing else to pay the troops with, Phips faced a potential mutiny. With no other option, on December 10th, 1690, the General Court of Massachusetts ordered the printing of a limited amount of government-backed, paper currency to pay the soldiers. A few months later, with tax season approaching, a law was passed removing the limit on how much currency could be printed, calling for the immediate printing of more, and permitting the use of paper currency for the payment of taxes.
The currency was initially unpopular for anything except paying taxes, and was phased out. Within a few years, however, paper currency would return to Massachusetts. The Bank of England began issuing banknotes in 1695, also to pay for war against the French, and they became increasingly common throughout the 18th Century. Paper money continued to stoke controversy throughout the early history of the United States, and it was tied to the value of gold for a surprisingly long time. It was not until 1973 that President Richard Nixon officially ended the international convertibility of the U.S. dollar into gold.