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Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance

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  • Farley Grubb

    (Department of Economics, University of Delaware)

Abstract

I decompose Virginia's paper money into expected real-asset present value, risk discount, and transaction premium or "moneyness" value. The value of Virginia's paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when treasurer malfeasance was suspected. Virginia's paper money was not a fiat currency, but a barter asset, with just enough "moneyness" value to make it the preferred medium of exchange for local transactions. Compared with alternative models, my decomposition model of inside monies is superior conceptually and statistically for explaining the performance of American colonial paper monies.

Suggested Citation

  • Farley Grubb, 2016. "Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance," Working Papers 16-01, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:16-01
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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. repec:eme:rehipp:s0363-326820160000032003 is not listed on IDEAS
    3. 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: Christopher Hanes & Susan Wolcott (ed.), Research in Economic History, volume 32, pages 147-224, Emerald Publishing Ltd.
    4. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 1-15, January.
    5. 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.
    6. Farley Grubb, 2015. "Colonial Virginia's Paper Money Regime, 1755-1774: A Forensic Accounting Reconstruction of the Data," Working Papers 15-11, University of Delaware, Department of Economics.
    7. Farley Grubb, 2014. "A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775," NBER Working Papers 19903, National Bureau of Economic Research, Inc.
    8. Farley Grubb, 2014. "A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775," Working Papers 14-08, University of Delaware, Department of Economics.
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    More about this item

    Keywords

    asset money; bills of credit; counterfeiting; fiat currency; quantity theory of money; transaction premium; treasury notes; 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
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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