The paper money of colonial America

The British North American colonies emitted colony-specific paper monies called bills of credit. A colony’s legislature had bills printed and then directly spent them out of their treasury to cover their expenses. When legislatures faced current spending deficits, they used these bills to move tax receipts through time to cover these deficits. Most bills were structured as zero-coupon bonds with maturities that spanned a window of years in the future. Future tax obligations to redeem the bills were legislated in the same paper money acts that authorized the bills’ emission. Upon redemption, the bills were typically destroyed and not returned to circulation. Legislatures spread the redemption of given emissions over windows of years to spread out future tax obligations to keep them at feasible levels, thus giving the redemption exercise fiscal credibility. Between emission and final redemption the bills circulated as a preferred medium of exchange in their respective colonies.