Colonial Monetary Systems

The British North America colonies were under-monetized, bank-structure constrained, and undeveloped in their ability to produce import substitutes. They were not allowed to mint their own specie coins, nor did they have gold or silver mines. The colonies could import specie coins in exchange for exported goods, but could not legally prevent imported specie coins from being re-exported to purchase desired imports. The colonists used different media of exchange to transact domestic trades and their creation of efficient domestic barter structures helped maintain chronic outside-money (specie coin) scarcity. A segmented market in monetary usage driven by relative cost considerations arose where imported specie coins were quickly re-exported to buy desired imports and local exchange was mediated using efficient barter structures. These alternative inside transacting media of exchange and units of account included tobacco money, wampum money, grain or country produce as pay and, eventually, legislature-issued colony-specific paper monies. These paper monies were structured primarily as zero-coupon bonds with nonspecific redemption dates embedded within designated fixed-spanned continuous-year maturity intervals. Their market value was predominately determined by time discounting. As such, they circulated below face value to varying degrees that depended on the legislated time frame structure, and follow-through execution, of redemption. These paper monies were a cumbersome medium of exchange compared with subsequent postcolonial banknote monies.