Colonial Script

2008-3-5 04:36:00

Looks like a number of great men in our history believed in fiat money. Here we see we can add Benjamin Franklin to the list.

As a result of scarcity of gold, the colonists turned to alternative forms of money including wampum, tobacco, and copper coins. Most silver coinage in circulation came from Spanish America, Spain, the Netherlands, the German States, France and other foreign countries. The colonies began issuing colonial script that was paper fiat currency not backed by gold or silver. This type of money was also known as colonial bills of credit . This radically differed from the bills of debit issued by the central banks of Europe.

During a visit to Britain in 1763, The Bank of England asked Benjamin Franklin how he would account for the newfound prosperity in the colonies. Franklin replied:

"That is simple. In the colonies we issue our own money. It is called 'Colonial Script'. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers.... In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."

In response, the Bank of England influenced the British Parliament to put a stop to this activity. Under the Currency Act of 1764, King George III decreed that the Colonists cease printing their own money. The colonial script in circulation was to be exchanged at a two-to-one ratio with notes drawn from the Bank of England. This caused widespread unemployment and economic depression in the colonies.

"In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed." (Benjamin Franklin)

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