Interestingly, there were problems with the gold standard. To make it work, it was necessary to have a lot of gold, which colonial America didn’t have. There was also a large trade imbalance, with more money going out of the colonies than coming in. For the most part, it was illegal for the colonies to mint their own money.
Colonists mostly used species coins from Europe, and could only get hold of large denominations and so they had to improvise. The Spanish pillar gold dollar was very popular in the colonies. Colonists would divide this large coin into pieces, typically 8, so they could have smaller denominations. This coin became known as pieces of 8.
Though it was illegal, some colonies did make their own money. In 1690, Massachusetts started using pine tree money. They created little pieces of paper with pine trees printed on them to use as currency. Technically the notes said they were redeemable for species currency or other goods but the government was broken and everyone knew it.
There was little faith that the money could be redeemed for gold but people still wanted it because the government declared that anyone could use it to pay their taxes. Historians often consider this the first instance of modern fiat currency in the western hemisphere, though as we know, this was already an old idea.
In colonial Virginia, colonists came up with a different plan to make up for the lack of coins. Their major export was tobacco, largely grown by indentured servants and slaves. Tobacco is addictive so there was a steady demand for it in Europe. The government set up warehouses to store and dry the leaves for export. If farmers brought their tobacco to the warehouse, then the officials who ran it would give them a receipt.
They could use this receipt to take the tobacco out and sell it whenever they wanted. Importantly, tobacco was interchangeable or fungible, meaning one leaf was pretty much the same as another and it didn’t matter if you got someone else’s tobacco when you went to turn in your receipt. As you might have guessed, these receipts became money.
“Will Cryptocurrency be the Money of the Future?”
- Listen to Cryptocurrency e-book podcast – read by Keith Dunford, Voice Over Productions
- Cryptocurrency ebook by Morgan Franklin Fellowship
- Read blog series – “Cryptocurrency – Money of the Future”
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