The Copper Panic of 1789 was a monetary crisis of the early

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

that was caused by

debasement A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nick ...

and loss of confidence in copper coins that occurred under the presidency of

George Washington George Washington (February 22, 1732, 1799) was an American military officer, statesman, and Founding Father who served as the first president of the United States from 1789 to 1797. Appointed by the Continental Congress as commander of ...

. After the

American Revolution The American Revolution was an ideological and political revolution that occurred in British America between 1765 and 1791. The Americans in the Thirteen Colonies formed independent states that defeated the British in the American Revoluti ...

, many states began

minting Minting is a village and civil parish in the East Lindsey district of Lincolnshire, England. The village is situated south from the A158 road. The population (including Gautby) at the 2011 census was 286. Minting Priory was located here. Mi ...

their own coins largely in

copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...

. At first the coins were widely accepted and their usage was rarely impeded, whereas several attempts by the

British Empire The British Empire was composed of the dominions, colonies, protectorates, mandates, and other territories ruled or administered by the United Kingdom and its predecessor states. It began with the overseas possessions and trading posts e ...

to introduce new coins to the Americas were met with resistance. For several years there were high levels of confidence in these coins and knowledge that they were a high quality copper. As more counterfeiters began production and caused minters to have to debase their coins to remain in business, the value of copper began to fall. Several laws were passed during this time period, including the prohibiting of debased coins from being considered legal tender. The State of New York prohibited the circulation of copper coins entirely. The State of

New Jersey New Jersey is a state in the Mid-Atlantic and Northeastern regions of the United States. It is bordered on the north and east by the state of New York; on the east, southeast, and south by the Atlantic Ocean; on the west by the Delaware ...

in 1787 declared it would no longer accept any legal tender of other states for any debts. This furthered the decline in copper prices, forcing many minters to shut down, leaving only counterfeiters who produced extremely low quality coins. By 1789 the market was completely flooded with debased coppers that were officially illegal and thus caused the citizens to lose all confidence in them. The Federal government attempted to value them at 48 coppers to the shilling, but merchants refused to cooperate and the coins became almost entirely worthless. At the height of the debasement, there was a 430%

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

rate for copper and commerce ceased, forcing several businesses and manufacturers to close down. The situation was alleviated when the Bank of

Philadelphia Philadelphia, often called Philly, is the List of municipalities in Pennsylvania#Municipalities, largest city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania, the List of United States cities by population, sixth-largest city i ...

began issuing paper bank notes to replace the copper coins. State governments sought to cooperate with the plan and thus established the small fiat currency as an active medium of trade. With stability returning to the economy the value of copper also rose again, until it was almost back to normal values in most areas. Commerce began to flourish again as the monetary system had confidence restored. This event was largely a factor for the federal government establishing a stronger federal currency standard and initiating more federal taxes to empower a central authority.

References

{{Financial crises Economic crises in the United States Financial crises History of banking 18th-century economic history 1789 in the United States 1789 in economics Recessions in the United States Copper