Wars And Paper Money
The British Government took a firm stand against paper money and in 1741 even forbade the issuance of paper money in New England. By 1764 the prohibition was extended to all the English Colonies. The British Board of Trade argued that paper money tended to drive gold and silver money out of the Colonies. The Colonies greatly resented the British prohibitions on paper money. This was an important factor in the general discontent that lead up to the revolution.
Prohibition or not, there were various types of paper currency in use by the American Colonies while they were under English rule. The issuance of this paper money was a matter of urgent necessity since there was a general shortage of hard currency in the form of coins by the growing Colonies.
When the Revolutionary War began, the question of funding the troops and the war effort became a harsh reality for a budding nation that was sorely lacking hard currency of any kind. The States felt it would be easier to finance the war effort by printing paper money rather than imposing taxes.
It has been estimated that on the eve of the Revolutionary War
that the money supply in the States consisted of one-fourth
hard specie and three-fourths paper currency. The severe scarcity
of small change resulted in the printing of lower denominations of paper money. Notes were issued for twopence and threepence, as well as fractions of a dollar including 1/16, 1/10, 1/9 and 1/6.
Three kinds of paper money were issued:
• Paper currency directly issued by the Continental Congress was called “old tenor” or Continental currency.
• Paper currency issued directly by the individual States were known as Revolutionary War state notes.
• Paper currency issued jointly by several States and the Continental Congress were called “new tenor.”
Initially, the Continental currency was issued by the Continental Congress. “Continentals” were bills issued on the “faith” of the “continent.” The Continental Congress was a loosely-organized assemblage of delegates with no power to tax or to impose other levies of a similar nature.
In 1775, after the warfare had begun in earnest, the Continental Congress issued paper money to pay the cost of the army. A resolution backed by the united States pledged to redeem the notes in Spanish milled dollars. The notes were to be issued by the Colonies over four years in amounts corresponding to their respective populations.
Each of the individual States recognized the Continentals as “legal tender.” Penalties were enacted to punish anyone who refused to accept the notes in payment.
The first issuance of Continentals was for $2 million on June 22, 1775. The denominations ranged from $1 to $20. By 1779 the issuance had reached the staggering sum of $241 million and the value of the Continentals had dropped to around three cents. In response, some of the colonies started to cancel the legal tender status of the Continentals. As a result the continentals soon ceased to circulate as money.
The Continental Congress appealed to the Colonies to raise “hard money” by imposing taxes and to issue “new tenor” notes which would be guaranteed by the Continental Congress.
The “new tenor” notes were to be an obligation of the individual Colonies with the Guarantee of the Continental Congress to be imprinted on the back of the notes. In response, each State profusely issued their own notes to cover their own governmental and military expenditures and kept the printing presses working overtime.
A mixed assortment of state currency and Continental currency commonly circulated during the Revolutionary War because of the substantial movement of people. Some New England Colony and State Revolutionary War issues were redeemed, but most remained outstanding and as such became worthless! State issues soon disappeared along with the Continental currency soon after 1789 when states were forbidden to coin money.
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