History

Although the National Banking Act of 1863 established a national currency and banking system, the country was still plagued by bank failures, panics, business bankruptcies, and economic contractions as it entered the 20th century. A particularly severe bank panic in 1907 fueled the reform movement to create the Federal Reserve System.

President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913. The Act established the Federal Reserve System to oversee the nation's money supply and provide an "elastic" currency that could expand and contract in response to the economy's changing demand for money and credit. Congress also empowered Federal Reserve Banks to issue Federal Reserve notes.

The creation of the Federal Reserve helped to stabilize the nation's money and banking system, but bank panics were not entirely eliminated. During the Great Depression of the 1930s, bank failures were common again. The legislation of the New Deal, which established deposit insurance and the Federal Deposit Insurance Corporation (FDIC), further stabilized the banking system.

World War II ushered in the printing of specialized military currency to provide economic stability for the U.S. dollar in occupied countries. In Hawaii, the Treasury Department replaced all U.S. currency with special issue notes as a precautionary measure in the event of a Japanese victory. Had the Japanese invaded Hawaii, the special currency would have prevented the Japanese from confiscating U.S. money, which was negotiable around the world.

The major Allied powers issued Allied Military currency during and after World War II in newly liberated or defeated countries such as France and Italy. This special currency, denominated in the currency of the occupied country, was used by Allied troops and citizens after a successful takeover. Allied Military currency was legal tender only in the occupied country and was under direct control of the country's Commander in Chief of the Military Government.

After World War II, the United States issued Military Payment Certificates to its troops and civilian personnel overseas. Unlike Allied Military currency, these notes were backed by U.S. dollars rather than being denominated in the currency of the occupied country, and they were controlled by the occupying U.S. Military authorities.