Final answer:
Initially, U.S. paper currency was backed by gold and silver, allowing holders to exchange notes for precious metals.
During the Civil War, the government issued greenbacks backed only by its promise to pay.
Now, the U.S. operates on a fiat currency system backed by the Federal Reserve's legal government decree.
Therefore, the correct answer is: option a). government's promise to pay.
Step-by-step explanation:
Over time, the United States government has backed its paper currency with a variety of methods.
Early on, currencies were backed by gold and silver, and people could exchange paper currency for these precious metals at banks. This was known as a commodity-backed currency.
However, with the start of the Civil War, the government began to issue greenbacks, which were not backed by any specific commodity but instead by the government's promise to pay.
Over time, the U.S. moved towards a fiat currency system where the value of money is not based on physical commodities but rather on the regulatory and economic power of the government that issues it.
Today, U.S. currency is fiat money, made legal tender by a government decree and backed by the Federal Reserve.