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Franklin Noll, PhD
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Franklin Noll's Blog on Monetary and Financial History.

A Hybrid Currency?

by Franklin Noll on 07/29/20


An example of hybrid currency: $50 Interest Bearing Note, 1865

An idea for discussion: What if there was a currency, physical or crypto, whose value changed with the amount of its usage?  

In the past, hybrid currencies (in the US) like the Continental Dollar or the Interest Bearing Note gained value over time as there was an expected payout in silver or gold at the maturity of the banknote/security.  Modern fiat currencies cannot do this, whether they are banknotes or cryptocurrencies.  But, what if we replaced the time component with usage?

Imagine if the value of a bitcoin, for example, increased every time it was added to a block.  In effect, every user of the coin would become a kind of miner, encouraging the use of the currency.  Would this stabilize the currency in the process?  And, would this scheme require some sort of valuation peg (perhaps a basket of goods—not another currency or specie)?

Imagine if the value of a banknote changed, according to clear rules, every time it passed a point of sale.  By raising or lowering the value of a note (never lowering it below its face value), you could speed up or slow down the velocity of the money supply and hence, inflation.  (BTW, the banknote would have a QR code that would be scanned.)

It just seems to me that the future of banknotes and cryptocurrencies means getting passed our believing that the current world of currency is the only one that can exist and that we have to bow to the existing system.  Certainly, our monetary past suggests that things used to be very different. Satoshi Nakamoto certainly thought outside the box.  Perhaps, it is time we did the same.

Cryptocurrency: Currency, Security, or Both?

by Franklin Noll on 07/28/20


One of the debates raging around cryptocurrency is whether it is actually a currency to be used for everyday transactions or a security to be used as an investment.  The monetary history of the United States can shed light on this debate.  In the past the US issued instruments that performed both functions simultaneously.  I will give two examples.

The Continental Dollar.  The Continental has become infamous as a failed attempt to fund the Revolutionary War by printing money.  After the war, the value of these notes collapsed, becoming worthless.  However, this is not the whole story.  As Dr. Farley Grubb has pointed out in his groundbreaking research, the Continental Dollar was actually a security created to be used as currency.

Continentals were basically zero-coupon bonds issued in small denominations.  Given the economics of the Revolutionary period, the Continental Congress knew that the notes, once issued, would trade hands at a discount, not worth a full gold or silver dollar.  However, Congress promised to redeem the Continental after the end of the war in specie—at full value.  Thus, as a Continental note was used in transactions, it was also gaining value as time passed and the end of the war neared.  However, the plan collapsed when the Congress changed the original terms of repayment, rendering the notes valueless.

The Interest Bearing Note.  During the US Civil War, the Interest Bearing Note was created to act both as currency and as a security.  Issued in denominations as low as $10, the notes paid 5% interest.  This interest would be paid when the note matured and was turned into the Treasury.  So, a $10 note would be used in everyday transactions at full value, knowing that its value was increasing over time.  These notes were a success and were paid off as promised by the US Treasury.



So, what does this tell us about the future of cryptocurrency?  Among other things, it tells us that being a currency and a security are not contradictory and that a cryptocurrency can be both.

The Dry Printing Revolution

by Franklin Noll on 07/27/20


A Four-Station Power Press, 1929

A revolution occurred in banknote printing in the mid-twentieth century.  This was the transition from the wet method to the dry method of intaglio printing.

Until the mid-1900s, banknote printing involved the repeated moistening of sheets before each printing.  The process was something like this: a sheet of secure paper would be wetted and then the banknote backs would be printed on the sheet.  The sheet would then be allowed to dry (along with its inked impression).  A few days later the sheet would be moistened again, and the banknote faces would be printed.  The sheet would need to dry before any surface printing and numbering could occur.

Wet printing was necessary because of the presses used.  Flatbed presses and later four-station power presses did not produce a great deal of pressure on the printing plates.  So, the paper needed to be moistened to make it more pliable and more receptive to taking the image from the intaglio plate.

This wet method of printing was time consuming and laborious.  It also limited the size of the sheet that could be printed—limiting the number of subjects (banknotes) that could be printed on each sheet and hence, productivity.  The problem was that wetting and drying the sheets caused them to expand and shrink in unpredictable ways, leading to registration problems.  In the US, the largest sheet that could be printed via the wet method would hold 18 notes.

A way was needed to print banknotes on dry paper.  No wetting meant no shrinking or registration problems.  And, the size of the sheet would only be limited by the intaglio press and the processing equipment downstream in the banknote production process.  Two developments were needed to attain dry printing: more powerful presses and quick-drying, non-offsetting ink.

By the mid-1950s, new inks were available to allow dry printing.  And, new, rotary intaglio presses were coming onto the market that exerted far greater forces than the old power presses.  So, by the late 1950s, the dry-printing revolution had arrived.  The rest is history. 

History in Banknote Design

by Franklin Noll on 07/26/20



Look at almost any banknote design, and you will find historical subject matter depicted.  There are good reasons for this as historical vignettes, portraits, and other material work to perform tasks that are critical for a successful design.  I would say that there are basically three interconnected functions performed by historical subject matter.

National Identity.  Historical subject matter is uniquely suited for establishing the national identity of a banknote.  As almost all banknotes are issued by nation-states (the EU is a special form of this), this is an important function.  The special history of a country sets it apart from all others.  Presenting elements of a nation’s history clearly marks out the ownership of a banknote.  Further, those parts of a nation’s past chosen for display on a banknote allow the issuer to make a clear statement about that country.  Heroic elements proclaim a heroic nation, inventive elements proclaim an inventive nation, and so on.  In essence, the historical subject matter chosen for a banknote design creates a specific historical narrative about that nation.

Narrative.  As we have seen, the use of historical subject matter creates a narrative.  In other words, all the historical elements used (historical vignettes, portraits, and other material) connect and work together to create a coherent message in the banknote design.  This is important for two reasons: one, it gives an overall cohesion to the design, and two, it gives the designer a way to move the viewer from one element to another.  And, as the viewer moves across the design, creating meaning and reading the narrative, he or she is also looking at the security features, which is kind of the whole point of the design.  Overall, history is ideal for creating narratives.  After all, history is nothing but l’histoire or the story.

Connection.  Finally, historical subject matter in banknote design allows the viewer to connect with the design, entering it and paying more attention to it.  As we saw above, the viewer creates the narrative as his or her eyes move across the note (examining the security features along the way).  This act also creates the meaning of the note so important for national identity.  The ease of connection comes from a citizen of a nation-state recognizing themselves in the history of their country.  So, there is an immediate interest in the banknote’s design and the narrative it presents, which is basically the viewer’s narrative.  I believe some sort of connection still exists when a national currency is viewed by someone foreign to the issuing country—such is the case of international currencies.

So, historical subject matter gives a banknote design an identity, a narrative, and a connection with the viewer.  And, for good historical subject matter, you need a historian.  And, that’s what I do!

Politics and New Currencies

by Franklin Noll on 07/25/20


Treasury Coin Note, Series 1890

New currencies are often the target of politics.  This not only applies to cryptocurrencies but also to past US currencies.

It may surprise some people that US currencies are not created by the US Treasury or the Federal Reserve but by the US Congress.  Congress can determine the date of issuance, the amount to be issued, the backing of the currency, the denominations allowed, and even what must appear on the notes.  

So, it has been the case that currencies have been created or manipulated not to solve economic problems but to solve political ones.

The prime example of this was the Treasury Coin Note—a currency the Treasury did not want and tried to end as quickly as possible.

The story of the Treasury Coin Note starts with the Panic of 1873, which caused an economic depression in the US.  To try and rectify the situation, Congress wanted to inflate the currency or do some quantitative easing.  To do this, Congress created Silver Certificates in 1878.  Backed by silver coin, these banknotes were injected into the economy, expanding the money supply.  In the process, this action made silver mining interests in the western US very happy because the law creating Silver Certificates also mandated that the US Treasury had to buy at least $2 million in silver every month.

By 1890, the US economy was recovering.  However, the discovery of new silver deposits in the western US created a glut in the silver market and prices were dropping.  Lobbyists for the silver interests were able to convince Congress to pass a law forcing the US Treasury to buy even more silver per month—at least 4.5 million ounces.  This extra silver would be used to back a new currency called the Treasury Coin Note.  The Sherman Silver Purchase Act of 1890 made the mining interests very happy.  The resulting expansion in the money supply and resulting price inflation also pleased farming interests who could now pay of their debts more cheaply.

The US Treasury saw no economic or monetary need for Treasury Coin Notes and the purchase of all that silver.  Indeed, given that the US was on the gold standard, the increase of silver in the money supply was a danger.  The infusion of silver dropped the price of gold, eventually leading to a crisis as there was a run on gold held by the Treasury.  Seeing the impending collapse of the gold standard, Congress was convinced in 1893 to repeal the act, ending the politically created Treasury Coin Note.

So, with new currencies, then as now, we need to be aware of the politics involved.  This is something studied by Noll Historical Consulting.

The Multiplicity of Currencies: Crypto and US

by Franklin Noll on 07/24/20



Much has been made of the multiplicity of cryptocurrencies: they have different backing; they have different functions.  It is all too confusing: Bitcoin, Ethereum, XRP, Tether, Bitcoin Cash, Bitcoin SV, Litecoin, Binance Coin, Tezos, and etc.

However, for much of the nineteenth and twentieth centuries, the US Government was guilty of the same multiplicity when it came to its currencies: they have different backing; they have different functions.  At one point in US monetary history, someone’s wallet could have held five or more types of US currency: United States Notes, Fractional Currency, Gold Certificates, National Bank Notes, Silver Certificates, Treasury Coin Notes, Federal Reserve Bank Notes, Federal Reserve Notes.  And, this list does not include coins.

We are all familiar with Federal Reserve Notes.  These are the only notes printed and issued today.  But, in the 1880s, for example, here were the currencies available in the US:

United States Notes: low-denomination fiat notes without backing (until 1879) and used for everyday transactions

Fractional Currency: notes ranging in denomination from 3 cents to 50 cents, replacing scarce silver coin

Gold Certificates: higher denomination notes backed by gold and used mainly for interbank transfers

National Bank Notes: mid-denomination notes backed by Government securities and used in everyday business

Silver Certificates: low-denomination notes backed by silver and silver dollars and used for everyday transactions along with United States Notes

Looking at this picture of US currencies, the present cryptocurrency situation does not look all that extraordinary.

The research into the history of money can gives us insight into state of currency and perhaps point a way forward.  This is what Noll Historical Consulting was created to do.


Legal Tender in the US

by Franklin Noll on 07/24/20

United States Note, Series 1862.  
Legal Tender obligation appears on the back.

Currently, the matter of what constitutes “legal tender” is before the European Court of Justice in Norbert Häring v Hessischer Rundfunk.  The basic issue is whether Euro notes must always be accepted as a payment.

Legal tender as a concept can seem a bit nebulous.  Legal tender was first applied to US Government currency in 1862 with the Legal Tender Act of 1862 that created the United States Note or Greenback.  This was the country’s first fiat currency, and these banknotes were being used to fund Union efforts in the Civil War.  (And, they were often referred to as Legal Tender Notes.)

What the Legal Tender Act basically said was that this new currency would be accepted for debts to the US Government, except import duties, that were still only payable in gold.  Congress’ intent by applying the legal tender obligation was to give some backing to this new fiat currency.  The notes, the act added, could also be legally used by the public to settle private debts.  At the time, the new Greenbacks were seen as a temporary measure that would end with the war.

However, the Greenback proved popular and endured after the war.  The concept of Government banknotes as legal tender expanded over time to other types of US banknotes and is now attached to the ubiquitous Federal Reserve Note of today.

The Coinage Act of 1965 was the last attempt to define legal tender in the US.  Embodied in the United States Code (Section 31 U.S.C. 5103) is the clause: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This means, just as in the 1860s, that US currency is a legal way to pay debts to the Government and in private transactions.  However, it does not mean that private persons or business are legally obligated to accept US coins or banknotes in payment of a debt unless there is a law in an individual state mandating it.  In private transactions, any form of payment may be arranged, including barter.  Also, private businesses may accept some forms or denominations of US currency and not others.

The study of legal tender and the evolution of currency in the US is one of the enterprises of Noll Historical Consulting.

Art & Security in Banknote Design

by Franklin Noll on 07/23/20



Banknote design is always a dance between art and security. 

Take for example the $1, $2, and $5 US Silver Certificates, Series 1896. Known now as the Educational Series (after the $1 face vignette) and considered the most beautiful notes created in the US, they were not successful as a banknote. 

At the time, banknote security was based on secure, distributed fiber paper and complex intaglio. Hence, it was argued that the complex artistic designs created greater security. However, all that ink made it hard to see the fibers in the paper. Also, all that ink never properly dried before issuance, blurring the images. Cash handlers at banks also disliked the notes, which were hard to read quickly and caused so much ink offset when stacked. 

The problems of art and security continue to plague banknote designers in this world of new substrates and high-tech security features.  

Noll Historical Consulting has helped inform the work of banknote designers for years.  We can help.

Tokenization of Currencies

by Franklin Noll on 07/23/20



In the book, Bubble or Revolution: The Present and Future of Blockchain and Cryptocurrencies, the authors talk about the tokenization of currencies, pointing to the $100,000 Gold Certificate as an historical example.

In 1933, the US went off the gold standard, withdrawing all Gold Certificates from circulation. However, the US Treasury printed one last issue of Gold Certificates, Series 1934, in denominations of $100, $1000, $10000, and $100000. These notes were to be used for gold transfers between the Treasury and Federal Reserve System.  

In effect, the certificates were tokens for actual gold.  This is, of course, not a new concept.  Some historians point to the start of modern currency with goldsmith receipts.  One could get a written note from one goldsmith that he has in his possession a certain amount of your gold.  You could then take this receipt to another goldsmith who would then "deposit" that gold into his account on your behalf, transferring your gold.

Unlike these receipts, however, the Gold Certificates of 1934 were only for Government use. The general public were not (and still are not) allowed to hold these notes. 

So, is the future of cryptocurrency leading towards a tokenization of currencies?  And, if so, would this be restricted to government use as in 1934, general consumer use as with goldsmith receipts, or both?  What can history tell us?  Noll Historical Consulting can explore this subject for you.

The Importance of Banknote Design Content

by Franklin Noll on 07/23/20



After spending years advising on banknote design, I know it is a combination of art and science, requiring the work of experts. But, for me, it has always come down to design content. You need a composition that creates a narrative that pulls the note user into the design and directs the eye around the note. Afterall, a security feature is useless if no one looks at it.  

Noll Historical Consulting can help you create a great banknote design, using composition and historical content.

A lot has been written on this topic by Hans de Heij.

Pictured is an example of great design, the newest 50-franc Swiss note designed by Manuela Pfrunder.

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