Federal Reserve Act
President Wilson signed the Federal Reserve Act on December 23, 1913, creating the Federal Reserve System and centralizing U.S. monetary issuance for the first time since 1836. The Fed was sold politically as a tool to prevent future banking panics like the Panic of 1907, but its structural effect was to institutionalize a federal money-printer. Federal Reserve Notes replaced the mix of greenbacks, silver certificates, and gold certificates that had circulated for 50 years. The new central bank was theoretically constrained by gold-reserve requirements (40 percent for notes, 35 percent for deposits) but those constraints would be loosened repeatedly over the following decades.
The Fed's gold-backing requirement started at 40 percent, fell to 25 percent in 1945, and was eliminated for Federal Reserve Notes in 1968 and for deposits in 1968. Each relaxation was politically unremarkable at the time, and cumulatively the constraint disappeared over 55 years.
04 · Wartime Suspensions
In the 19th century, wars became the standard trigger for currency debasement. The U.S. Civil War introduced paper greenbacks; the Franco-Prussian War forced France off silver; the Russo-Japanese War pushed Russia off gold. The pattern was always the same: suspend metallic convertibility at the start of the war, over-issue paper during it, then fight a losing political battle over whether to return to the old standard. The United States returned to gold in 1879 — at great political cost. Argentina, Russia, and several European countries never fully returned. By 1914 the monetary system was held together by a gold standard that everyone knew was one war away from collapse.
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