Monetary Policy

Nessessity for Paper Money/Colonial Issues PROBLEMS *No Money Supply (in terms of Specie) *Colonial Trade Deficit (More Goods Imported for Money than Exported) *No Gold or Silver *Trade with other countries stopped *Colonial Mints were Banned – No method of making coins SOLUTIONS *Commodity Money – Pelts, Animal Furs, Tobacco – used in place of Specie *Tobacco Inspection Note (ex. “This note is worth 10 lbs of Good Tobacco”) *Use of Non British Gold/Silver FINALLY *Production of Paper Fiat Money >>>>Money Backed by Government’s “word” Paper Money *Created and used out of nessicity *Could be redeemed in future dates *Tax revenues backed emission of paper money *First done on Experimental Basis *Supported by Farmers and Merchants *Others feared Depriciation like in the New England Experience New England Experience (Bad in Printing Money) *Rhode Island (Astronomical Inflation *Massachusetts Paper Money experienced High Inflation (Expense of Military Campaign, No Loan Sources, Nothing in Treasury---In Massachusetts Paper Money the Price of Wheat Rose 700% Pennsylvania and Other Middle Colonies *Printed Money Only to Stimulate Colonies – Thus Very little Inflation (1720-1770), Especially NY – Repaid French and Indian War Debt by 1768, Very Good Credit Why Paper Money? Poor System of Issuing and Collecting Taxes, No Capital Markets and Colonists didn’t Pay Taxes