I am writing an article for the Maryland State Numismatic Association about Maryland colonial currency. After writing the introduction, I thought it would be of interest to my readers. I made a slight modification to neatly end this as a single article. The rest will appear in a future MSNA Journal.
Prior to the Great Depression, paper currency was backed with specie, gold or silver mined in the United States. During the founding of the country currency had been limited to coins with an intrinsic value based on their gold, silver or copper content. As the King of England tried to tax the colonies to pay for the wars in Europe, the colonies looked for ways of financing their own governments to provide services.
Since the colonies did not have the ability to coin money, they issued paper notes. These notes functioned as currency but actually were bills of credit, short-term public loans to the government. For the first time, the money had no intrinsic value but was valued at the rate issued by the government of the colony in payment of debt. Every time the colonial government would need money, they would authorize the printing of a specified quantity and denomination of notes that it would use to pay creditors. The emission laws also included a tax that would used to repay the bill of credit and the promised interest.
As taxes were paid using the paper currency, the paper was retired. As the notes were removed from circulation, that was less payments the government had to make. On the maturity date, people brought their notes to authorized agents who paid off the loan. Agents then turned the notes over to the colonial government to be reimbursed and collect a commission for acting as an agent.
Sometimes, colonies could not pay back the loan. In those cases, the colonies passed another emission law to cover the debt owed from the previous emission plus further operating expenses. In this case, mature notes were traded for new notes. The colonists accepted this system since there were shortages of coins as well as there being an inability to convert the value of foreign coins into colonial shillings by farmers and other unskilled in such matters.
Maryland was one of the more successful colonies. Maryland benefited from its ownership of the Chesapeake Bay and ran a robust economy as a trading post for Maryland and Virginia goods. Maryland merchants were able to make a sizable living trading tobacco and other crops to Europe for Virginia farmers.
Starting in 1733, there were eight emissions from the Maryland colony with four during the Revolutionary War. The last emission was in 1780 with a successful payment of obligations in 1782, prior to its 1784 maturity date. In 1784, Maryland was able to pay its debts in specie, mostly Spanish Milled Dollars, and outlawed any future release of currency.