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By minds 1870s, the nation adopted a gold standard. A system where paper money and coins are equivalent to a certain amount of gold.

There had two advantages: It states a definite values to the dollar, people could redeem the value of their paper money any time at the bank. Issuing currency only was done if they had enough gold in the treasury. But the gold supply was limited.the gold standard became essential in the banking system, it gave the public confidence in banking.

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Between  1863 was known  as the free banking, or “ wildcat” Era. because the Banks were in removed areas.

Some bank turned into fraud and cheating.

Resides private banks, churches, railroads, stores and individuals could issue bank notes, and different type of currency with different value from other places or cities. At the end many notes were counter fitted .

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From 1863 to 1864 the federal government reformed the national banking Act, and gave 3 important powers:

The power to charter banks.

Banks could get adequate amount of gold and silver  to backed their bank notes.

The power of issuing a national currency.

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Banks were informal businesses. Usually merchants that allow customers to deposit their money with small fee charge to keep it safe.  Merchants would charge interest fee when customers to take a loan.

This system wasn’t 100% safe

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In 1816, congress corrected the situation by renewing a second 20 years  charter like they and the 1st time, slowly the managed to regain the people’s trust.

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Congress got the power to create  the first Bank 1791 ( 20 years. Contract ).

Purposes, government hold money from collected taxes, borrow money to people regulated National and foreign commerce.

Bank issued money in the way of notes, backed by silver and gold, also made sure to have enough of it.

Bank got successful in keeping order and stability in banking.

When the bank charter expired, (state gov. bank), they began to issue notes that they  couldn't be backed by silver, gold or spices, there wasn’t  any control or regulation. In consequence, merchants  became aware and confused, resulting in a financial chaos.