Economics and Business


What is “rag money”?

Rag money is a derisive term for paper currency. The name comes from the early days of paper money, when paper itself was predominately made with the cotton and linen fibers from rags. Hence, bills were “rag money.” Given that valued currency was issued in silver or gold coins by the established governments of Europe, it is not surprising that Americans greeted paper currency—which is nothing more than a promise of future payment in coin—as something to be regarded with skepticism. After the Declaration of Independence (1776), the first bills that were issued by the U.S. government quickly became worthless: In its effort to fund the American Revolution (1775–83), the Second Continental Congress printed so many bills, called Continentals, that there was not enough silver to back them up. The financial crisis that emerged did nothing to inspire American confidence in paper currency. Rag money continued to have its detractors even after the Revolution had been financed by European loans and the U.S. government established the dollar as its unit of currency (1785).


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