• Table of Contents
  • Explanatory Essays
  • Devaluation

    Land bank era

    During the height of the Land Bank era and during the Revolutionary War, several colonies printed far more currency than they had the ability or resources to redeem. Thus each new emission did not replace the currently circulating notes but rather added to them so that more and more paper money was put into circulation. At both times this oversupply of currency caused a significant devaluation in its purchasing power. During the 1730's -1750's the exchange value of paper notes plummeted. By the late 1740's older Massachusetts, Connecticut, New Hampshire, Rhode Island, and North Carolina notes were trading at the rate of 45s in notes for a Spanish dollar. The problem was especially acute in Rhode Island due to the massive quantity of land bank currency they printed totaling some £469,000. The first attempt to deal with this situation was by designating the older currencies as Old Tenor and allowing them to circulate at the lower rate, then setting a new rate (from 6s to 8s per Spanish dollar) for new issues, which were designated as New Tenor currencies. This was only a temporary solution that did not attack the cause, soon New Tenor notes were devalued. Massachusetts went so far as to create a third Tenor, ending up with three different currencies called Old Tenor, Three Fold Tenor (or Middle Tenor) and fourfold Tenor (New Tenor).

    This situation was partly resolved by closing the Land Bank Offices. Additionally, the Currency Reform Act, passed by Parliament in 1751, put New England on the Lawful Money standard of 6s to the Spanish dollar (or 33.33% above sterling) and severely limited future currency emissions. No currency redemption dates could be extended, no additional legal tender issues were allowed, all future emissions had to be redeemed within two years, while emergency issues had to be redeemed within five years but with 5% interest. These restrictions closed down the presses in Massachusetts and greatly restricted the quantity of money printed in the other New England colonies. Only New England was put under these restrictions. South Carolina never was able to take control of its currency and devaluation continued through the remainder of the colonial period. In 1748 North Carolina exchanged its depreciated currency for currency at the Lawful Money rate (called Proclamation Money in Carolina) trading 7.5 old notes for each new note. For the next quarter century depreciation was under control. The Middle Colonies had not abused the Land Bank system so they never experienced major devaluation during this period.

    Revolutionary War era

    Devaluation was also problematic during the Revolutionary War, especially from 1779. Under the Articles of Confederation, adopted on June 26, 1778, both the individual states and the central government retained the right to issue currency. This resulted in the emission of numerous issues to pay for the war. The situation became especially acute in 1779 and subsequent years. In January of 1779 colonial and continental currencies were trading at between 7.42 to 8 paper dollars to a Spanish dollar; however by June of 1781 the rate was from 100 to 350 paper dollars to a Spanish dollar. By December of 1781 the rates had reached 725 paper dollars to a Spanish dollar in North Carolina and 1,000 paper dollars to a Spanish dollar in Virginia!

    Devaluation had become so dramatic that several states stopped issuing currency. Maryland, New York and New Jersey ceased emissions in 1776, followed by Connecticut, Delaware, New Hampshire and Pennsylvania in 1777, Georgia in 1778, then Massachusetts, Rhode Island and South Carolina ceased emitting currency in 1779, followed by North Carolina in 1780 and finally Virginia in 1781. To remedy this problem the Continental Congress passed a resolution on March 18, 1780 guaranteeing payment in Spanish milled dollars for new state emissions that were to be distributed in exchange for depreciated Continental Currency (generally at the rate of $40 continental currency to $1 in guaranteed currency). Between April and June of 1780 New Hampshire, Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania and Maryland issued guaranteed emissions. Connecticut printed a guaranteed emission but never released it.

    Additionally, several states issued their own independent emissions. The first were Connecticut (March 1, 1780), Pennsylvania (April 29, 1780) and Rhode Island (June 1780) offering currency redeemable in Spanish dollars with 5% interest. Maryland emitted a similar issue on June 8, 1780 with 5% interest but redeemable in specie or bills of exchange. Other states followed with emissions from New York and New Jersey in 1781, North Carolina in 1783 and South Carolina in 1786. The Republic of Vermont also took part issuing its first and only currency emission in 1781. Soon overproduction started to erode the value of these emissions as had happened in the past. The final emissions were issued by South Carolina in 1787 and New York in 1788. With the ratification of the Constitution in 1789 states were prohibited from issuing currency.