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Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779

Author

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  • Farley Grubb

    (Department of Economics, University of Delaware)

Abstract

I use denominational structure (the spacing and size of monetary units) to explain how the Continental Congress attempted to manage a successful common currency when sub-national political entities were allowed to have separate currencies and run independent monetary policies. Congress created a common currency that was too large to use in ordinary transactions. Congress hoped this currency would be held for post-war redemption and would not circulate as money during the war. As such, it would not contribute to wartime inflation. By contrast, individual state currencies were emitted in small enough denominations to function as the domestic medium of exchange.

Suggested Citation

  • Farley Grubb, 2015. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779," Working Papers 15-10, University of Delaware, Department of Economics.
    • Handle: RePEc:dlw:wpaper:15-10
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    File URL: http://www.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2015/UDWP2015-10.pdf
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    References listed on IDEAS

    as
    1. Jim Celia & Farley Grubb, 2014. "Non-Legal-Tender Paper Money: The Structure and Performance of Maryland’s Bills of Credit, 1767-1775," Working Papers 14-13, University of Delaware, Department of Economics.
    2. James Celia & Farley Grubb, 2016. "Non-legal-tender paper money: the structure and performance of Maryland's bills of credit, 1767–75," Economic History Review, Economic History Society, vol. 69(4), pages 1132-1156, November.
    3. Farley Grubb, 2011. "The Continental Dollar: Initial Design, Ideal Performance, and the Credibility of Congressional Commitment," NBER Working Papers 17276, National Bureau of Economic Research, Inc.
    4. Van Hove, Leo, 2001. "Optimal Denominations for Coins and Bank Notes: In Defense of the Principle of Least Effort," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 1015-1021, November.
    5. Farley Grubb, 2013. "The Continental Dollar: How the American Revolution was Financed with Paper Money--Initial Design and Ideal Performance," NBER Working Papers 19577, National Bureau of Economic Research, Inc.
    6. Farley Grubb, 2016. "Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775," Research in Economic History, in: Research in Economic History, volume 32, pages 147-224, Emerald Group Publishing Limited.
    7. Grubb, Farley, 2008. "The Continental Dollar: How Much Was Really Issued?," The Journal of Economic History, Cambridge University Press, vol. 68(1), pages 283-291, March.
    8. Wallace, Neil & Zhou, Ruilin, 1997. "A model of a currency shortage," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 555-572, December.
    9. Davis, Ken & Whittlesey, Norman K. & Huffaker, Ray G. & Butcher, Walter R. & Smith, Eldon D. & Francl, Terry & Smith, Katherine R. & Ravnholt, Eiler C. & Gantz, Eugene & Baquet, Alan E. & Skees, Jerry, 1994. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 9(3), pages 1-5.
    10. Wynne, Mark A., 1997. "More on optimal denominations for coins and currency," Economics Letters, Elsevier, vol. 55(2), pages 221-225, August.
    11. Telser, L. G., 1995. "Optimal denominations for coins and currency," Economics Letters, Elsevier, vol. 49(4), pages 425-427, October.
    12. Redish, Angela & Weber, Warren E., 2011. "Coin Sizes And Payments In Commodity Money Systems," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 62-82, April.
    13. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 281-286, April.
    14. Tschoegl, Adrian E, 1997. "The Optimal Denomination of Currency: A Conjecture," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 546-554, November.
    15. Farley Grubb, 2008. "The Distribution of Congressional Spending During the American Revolution, 1775-1780: The Problem of Geographic Balance," NBER Working Papers 14267, National Bureau of Economic Research, Inc.
    16. Farley Grubb, 2013. "The Continental Dollar: How the American Revolution was Financed with Paper Money—Chapter 3 Initial Design and Idea Performance," Working Papers 13-10, University of Delaware, Department of Economics.
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    Cited by:

    1. Farley Grubb, 2017. "The Paper Money of Colonial North Carolina, 1712-1774," Working Papers 17-01, University of Delaware, Department of Economics.

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    More about this item

    Keywords

    bills of credit; legal tender; paper money; quantity theory of money; zero-coupon bonds.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913

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