What is Bill of Credit
Bills of credit are actually short term public loans which are given to the government. Earlier, currency in US was limited to coins that had an intrinsic value according to their metal content, i.e. gold, silver or copper; which was same as to the value of commodity items that were used in bartering. But after these credit bills came into light, the money had no intrinsic value than the value of the paper on which it was printed. In fact the only reason that they had high value was the fact that they were issued by and accepted by the government for the payment of debts.
This system was called “currency finance” because the currency was printed in order to pay government debts based on anticipated tax income. Oversupply of Paper currency would result into inflation or raise of prices, so it was printed keeping in mind that the currency printed should be lesser than or equal to money as the economy could expect to get back in the form of taxes.
Until there was a shortage of coins, paper currency was the most preferred mode of exchange; quite effective for the transactions as compared to barter. When this mode of currency got started, even farmers were the ones, who took it whole heartedly. Because they were not so learned that they could make the calculations and convert the foreign currency into shillings and liked it because it was directly correlated with each colony’s money of account.
At the start of the paper currency decade, they were used to fund military actions. In fact, the first paper currency that was produced in eight of the original thirteen colonies was printed to fund military operations. The printing of paper currency was the result of various wars that required huge funding and by the way of currency printed on paper, this purpose was fulfilled. The last colony that issued paper currency was Virginia, in May of 1755, to fund the military operations of General Edward Braddock, related the French and Indian War.
In addition to military operations major government expenses relating to the construction work or repair/modification of important public structures like buildings, monuments, lighthouses were funded through currency printing. The currency issued in Pennsylvania- March 20, 1773 ,March 25, 1775, were both made to be used for the construction work of the Cape Henlopen Lighthouse and the bills that were printed at these times, had a display of a lighthouse on the back.
Lower denomination notes were usually of a smaller size and were much more in circulation than the higher denominations notes. So before new bills were printed and issued, the older ones were recalled and cancelled due to their expiration and then new lot of bills were printed and sent to the economy for use.