In 1690 the Province of Massachusetts Bay created “the first authorized paper money issued by ay government in the Western World”. It was issued to pay for military expeditions during King William’s War. Many other colonies followed suite and began issuing their own paper money as a result.
The colonies paper bills or “bills of credit” were fiat money or currency without an intrinsic value that has been established as money. It does not have a use value and has value only because the government maintains its value or because parties engaging in exchange agree on its value. It was used as an alternative to commodity more and representative money. Commodity money being precious metals such as gold or silver and representative money represents a claim on a commodity which could be redeemed to a greater or lesser extent. Unfortunately though when colonial governments issued too many bills of credit or failed to properly tax them out of circulation, inflation was imminent.
In New England and the southern colonies, this was the most prevalent as they weren’t frequently at war as the Middle Colonies had been. Pennsylvania, however was responsible for not issuing too much currency and today remains a prime example in history as a successful government-managed monetary system. Pennsylvania’s paper currency was secured by land and generally maintained its value against gold from 1723 until the Revolution began in 1775. This depreciation was incredibly harmful to creditors in ZGreat Britain when colonists paid their debts with money that had or would eventually lose its value.