As was the case in New France, British colonies in North America also experimented with paper money with mixed success, issuing "bills of credit.” These bills, typically, although not exclusively, used as a means of wartime finance, were denominated in convenient amounts and circulated widely as currency. The Massachusetts Bay Colony was the first British colony in North America to issue such bills of credit in 1690. Paper money issued by Massachusetts, or "Boston bills,” circulated in Nova Scotia during the first half of the eighteenth century owing to close economic and political links between Massachusetts and the British garrison and community in Annapolis Valley, formerly Port Royal.
(Army bill, $25, 1813
Printed in Quebec City, these notes were used to pay troops and to buy provisions during the War of 1812. At the end of the war, the bills were redeemed in full, which
restored trust in paper money.)
Bills of credit were not backed by specie and fell into disrepute because of overissuance and high inflation in the U.S. colonies prior to and during the American Revolution. Trust in paper money was restored in Upper and Lower Canada by a successful issue of army bills to help finance the War of 1812. The initial issue was for £250,000 worth of bills, denominated in dollars, by the government of Lower Canada; later issues raised the amount outstanding to £1.5 million. These bills were legal tender in both Upper and Lower Canada. Larger bills, those with a value of $25 or more, earned interest. By 1816, after the war ended, all bills had been redeemed in full.
(Island of St. John, 10 shillings, 1790
The Island of St. John, now known as Prince Edward Island, was one of the first colonies in British North America to issue Treasury notes.)
Other provinces had broadly similar experiences. Prince Edward Island (then called the Island of St. John) experimented with paper money as early as 1790, when the colony issued £500 of Treasury notes to make up for a shortage of coin. These notes were legal tender and were issued in amounts of up to £2. Further issues followed through the first half of the nineteenth century.
In New Brunswick, the authorities issued Treasury notes on several occasions, first denominated in dollars in 1805 and 1807, and then in pounds following the War of 1812. The government discontinued such issues in 1820.
Nova Scotia also issued Treasury notes to help finance its military expenditures during the War of 1812. Although Nova Scotia was little affected by the war, the colonial authorities developed a taste for paper money as a means of financing public works and continued to issue new series of Treasury notes after the war.
The first issue was interest-bearing and redeemable in specie at par. In time, however, the backing of the notes deteriorated, and by 1826, the notes had become inconvertible. The amount in circulation also increased dramatically over time.
Initially, Treasury notes were well received by Nova Scotians and were used widely. But as their quantity increased and quality (i.e., their convertibility) decreased, they began to lose their value. In 1832, efforts were begun to establish a sound currency in Nova Scotia and to strengthen the credit standing of the province. The stock of outstanding Treasury notes was reduced, and in 1834, all private notes issued by banks, firms, and individuals were required to be redeemable
in specie. This sharp monetary contraction exacerbated a serious economic downturn in 1834.
Some years later in 1861, the Colony of British Columbia issued Treasury notes, first seemingly in pounds and, subsequently, in dollars. These notes, which were used to finance public works, circulated freely, given a shortage of minted coins.
Government experiments with issues of paper money met with mixed success in both the French and British colonies in North America. Typically introduced to meet the exigencies of war, government-issued paper money was initially well accepted by the population and helped to facilitate commerce. But with few controls in place to limit the circulation of notes, the temptation of governments to rely increasingly on issues of paper to finance their operations often proved to be too great. Rapid increases in the stock of paper money relative to demand led to inflation, a growing reluctance to accept paper money at par with specie and, ultimately, the need for monetary reform.