Throughout the New World during the colonial period, hard currency was a little hard to come by. As discussed earlier, at the time most of the colonial powers used an economic system known as mercantilism, which basically held the view that countries should maximize the value of their exports while minimizing the value of their imports, insulating themselves from foreign trade via taxes, the subsidization of domestic industries, and the establishment of overseas colonies. With regards to said colonies, they were largely to be viewed as sources for importing raw materials otherwise not available and captive markets for the export of manufactured goods. As you can imagine, this had all sorts of negative consequences for the colonies, especially as they grew in size and began to develop their own complex economies. They were pretty much being forced to constantly run a trade deficit, which made it extremely difficult to maintain a supply of hard currency which were needed for day-to-day transactions.
Throughout the colonial period, the Thirteen Colonies, despite their growing size and economic importance, never had enough hard currency to go around, forcing many people within the colonies to rely on the bartering system, which doesn’t sound all that bad until you actually try to do transactions with a bunch of different people, some of whom often don’t need whatever the hell you might have on you at that given time. Now for the southern colonies this was annoying but not the end of the world given their cash crops were in high demand, meaning that the crops themselves could be used as a form of currency in a pinch, but it left New England and the middle colonies pretty well royally fucked. The problem was so bad that the most common hard currency in the Thirteen Colonies was not the British pound, but rather the Spanish dollar, brought in by New England merchants. At the time most international trade was done via the Spanish dollar, which thanks to the constant influx of gold and silver into Spain from the New World made it one of the most widely available and stable currencies in the world, even when Spain itself was constantly teetering on the edge of collapse.
In 1690, Massachusetts became the first colony to begin issuing paper money. Needing funds to finance its militia during King William’s War, they began paying for goods and services via bills of credit, which given the lack of currency could not be exchanged for silver or gold coins but could be used to pay taxes owed to the colony or purchase of unclaimed land. This proved rather successful in not just financing the war effort, but also solving the whole currency issue, so much so that by the 1730s pretty much all of the colonies were using some kind of similar system. Unfortunately, while this made day to day life easier, it created a real economic cluster fuck when it came to trade. Though equivalent to a British pound when being used to pay taxes or buy unclaimed land, and fairly stable for transactions within the colony that issued them, the value could otherwise vary wildly based upon all sorts of assumption regarding how many notes had been issued, expected tax collections, supply and demand of unclaimed land, and other such factors. This created a fucked up situation where the notes of each colony held different values, which made transactions using the notes across colonial borders or the Atlantic confusing and risky. However, due to many colonists having literally no other currency, often British investors and merchants were forced to take the bills in payment of debts or receive nothing at all.
The use of bills of credit as currency really only worked when the amount of notes issues were similar to the number of bills being retired, otherwise the bills in circulation would lose value and inflation would set in. This was especially a problem in New England, where due to bordering French Quebec they were constantly in conflict throughout the early and mid-eighteenth century. Since Britain gave little to no support, viewing it as being each colonies responsibility to see after its own defense, the result was the New England colonies issued far more bills than they could realistically retire, resulting in a dramatic fall in value, eventually becoming so bad that the British government stepped in. In 1751, scared shitless over the possible consequences of British investors and merchants losing a shit ton of money, the British government passed a law to regulate the use of bills of credit in the New England colonies. The colonies were given a cash bailout to redeem the excess bills, bills could not be used for private transactions, and new bills had to be retired within two years of issue.
Despite the bailout, the new law caused a significant economic recession in New England. Merchants went deeper into debt, many farmers were forced to sell part of their land to pay off loans, public works were abandoned, and economic growth sputtered. The only thing which kept the regional economy afloat was the New England merchant fleet, though even with it economic growth would not return to levels seen in the earlier half of the century until after the American Revolution.
