Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance

Farley Grubb

No 16-01, Working Papers from University of Delaware, Department of Economics

Abstract: I decompose Virginia's paper money into expected real-asset present value, risk discount, and transaction premium or "moneyness" value. The value of Virginia's paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when treasurer malfeasance was suspected. Virginia's paper money was not a fiat currency, but a barter asset, with just enough "moneyness" value to make it the preferred medium of exchange for local transactions. Compared with alternative models, my decomposition model of inside monies is superior conceptually and statistically for explaining the performance of American colonial paper monies.

Keywords: asset money; bills of credit; counterfeiting; fiat currency; quantity theory of money; transaction premium; treasury notes; zero-coupon bonds (search for similar items in EconPapers)
JEL-codes: E42 E51 G12 H60 N12 N22 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016
New Economics Papers: this item is included in nep-his, nep-mac, nep-mon, nep-ore and nep-pay
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Working Paper: Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance (2016)
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