First Regiment of Dragoons
The origins of the challenge coin dates back to the second world war and was first used by Office of Strategic Service personnel who were deployed in Nazi held France. The coins were simply a local coin used as a "Bona Fides" during a personal meeting to help verify a person's identity. There would be specific aspects such as type of coin, date of the coin, etc that were examined by each party. This helped prevent infiltration into the meeting by a spy who would have to have advance knowledge of the meeting time and place as well as what coin was to be presented, amongst other signals, as bona fides.
The very first unit in the US Military known to have a coin was the oldest Special Forces Unit in the US Army. The 10th Special Forces Group, more commonly referred to as Green Berets, was founded at Prinz Heinrich Kaserne in Lengries Germany in 1952 by Colonel Aaron Banks, himself a former OSS operative.
The only units known to have coins in the US Military prior to the creation of the United States Special Operations Command (USSOCOM) in the 1980s were the "green berets" or Army Special Forces. USSOCOM was created subsequent to the failed Desert One Operation in which a multi service special operations task force attempted to save Iranian held American Hostages in Iran. Prior to the creation of USSOCOM each service's special operations forces operated under the direction of their mother service.
There is speculation that the lack of popularity of challenge coins prior to the creation of USSOCOM may have been due to the conventional military's disdain for Special Forces (green berets) as "out of control cowboys". In fact, prior to the creation of US Army Special Forces Command (USASFC) and USSOCOM under the Reagan Administration, for an officer to become a green beret in the US Army was considered the kiss of death for his career. With the creation of USSOCOM the military slowly lost the lack of respect for special operations forces and the proliferation of challenge coins began in earnest.
The first conventional force to start using challenge coins was the 82d Airborne Division at Fort Bragg North Carolina. This was probably due to the 82d Airborne's proximity to the Army Green Beret's School and Headquarters known as the US Army John F. Kennedy Institute for Military Assistance on Smoke Bomb Hill at Fort Bragg North Carolina.
Other versions of US Military Challenge Coin History have the challenge coin beginning as far back as Roman Times with coins being issued to units as identifying marker for troops. Regardless, these coins are deeply embedded in US Military tradition.
Another part of the coin tradition dates back to the Vietnam war:
The tradition of the coin giving dates back to Vietnam actually when soldiers would tote along a piece of "lucky" ordnance that had helped them or narrowly missed them. At first it was small arms ammunition, but this practice grew to much bigger and more dangerous ordnance as time wound on. It became then actually a dangerous practice because of the size and power of the ordnance being carried, so commanders banned it, and instead gave away metal coins emblazoned with the unit crest or something similar. The main purpose of the ordnance had been when going into a bar, you had to have your lucky piece or you had to buy drinks for all who did have it. The coins worked far better in this regard as they were smaller and not as lethal! So, if you go to a military bar, whip out a challenge coin and slam it down on the bar, those who lack one buy drinks! Obviously you have to be careful about this tradition... However, Commanders and units give out coins for this and as mementos for services rendered or special occasions.
There is another story about an American soldier scheduled to rendezvous with Philippine guerrillas during WWII. As the story goes, he carried a Philippine solid silver coin that was stamped on one side with the unit insignia. The coin was used to verify, to the guerrillas, that the soldier was their valid contact for the mission against the Japanese.
The challenge coin tradition has spread to other military units, in all branches of service, and even to non-military organizations as well as the United States Congress, which produces challenge coins for members of Congress to give to constituents. Today, challenge coins are given to members upon joining an organization, as an award to improve morale, and sold to commemorate special occasions or as fundraisers. In the Air Force, military training instructors award an Airman's coin to new enlisted personnel upon completion of their United States Air Force Basic Military Training and to new officers upon completion of their Air Force Officer Training School.
Source: Wikipedia.com for more info
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