Currency Finance: An Interpretation of Colonial Monetary Practices

In Order to Form a More Perfect Monetary Union

“…The certificates were irredeemable, bore no interest, and were issued in fixed nominal amounts. They apparently tended to be of even less value than continentals (Ferguson 1961 , p. 65, n. 26), although Nevins (1924, p. 505) asserts that "it was often difficult, in practise, to distinguish between the certificates and paper money." And, in fact, the certificates did serve certain functions of money, since they were accepted by some states for taxes after February 1780.…”

“…Final settlement certificates, though, were also used in government payments. For instance, about $11 million (in specie value) of final settlement certificates were issued in troop payments (Ferguson 1961 , p. 180). 4 The states also issued certificates of various sorts in addition to their explicit issues of paper money.…”

“…In addition, the states issued loan certificates which were analogous to federal loan certificates. 5 See, for example, the work of Schweitzer (1989) or Ferguson (1961). The latter argues that during the Confederation period, "the various states were re-enacting their particular experience with paper money in colonial times" (Ferguson 1961 , p. 244).…”

The Origins of the Monetary Union in the United States

“…By January 1781, $100 Continental was required to obtain $1.00 in specie. Because of this depreciation, Continental issues ceased late in 1779, and, according to Ferguson (1961), the Continental ceased to circulate as a currency by the spring of 1781.…”

“…Also seeSylla (1982) for an overview of some of the issues we discuss.3 Prior to the creation of paper money, the colonies had made use of externally minted specie.However, each colony (although it minted no specie of its own) defined a colonial unit of account.This unit was measured in pounds, shillings, and pence of the colony in question, and each colony defined its unit of account to be a certain quantity of Spanish milled dollars. Thus a pound in Pennsylvania meant something different than a pound in South Carolina; throughout we will use the term pound to apply to the colony in question.4 For a discussion of different colonial experiences seeFerguson (1953),Ernst (1973), Brock (1975,McCusker (1978),Smith (1985aSmith ( ,b, 1988,Wicker (1985), orPerkins (1992).Smith (1985a,b) provides an explanation for how temporary monetization of deficits was consistent with stable currency values.5 In fact some colonial laws prohibited the legal valuation from being enforced in preference to the market rate of exchange.6 It bears emphasis that the legal valuation of pounds in the different states varied considerably. In Georgia a Spanish dollar was valued at 5 shillings, in New England and Virginia at 6…”