Bills of credit

British colonies in North America would issue bills of credit in order to deal with fiscal crises, although doing so without receiving them as revenue in like amounts would increase the money supply, resulting in price inflation and a drop in value relative to the pound sterling.

The Massachusetts bills were finally retired in 1749 when the province received a large payment in coin for its financial contributions to the 1745 Siege of Louisbourg.

The painful experience of the runaway inflation and collapse of the Continental dollar prompted the delegates to the Constitutional Convention to include the Contract Clause into the United States Constitution, so that the individual states could not issue bills of credit or "make any Thing, but gold and silver Coin a Tender in Payment of Debts.

"[4] The United States Government has, at numerous times throughout American History, issued Bills of Credit to utilize in place of paper currency.

The grouping includes the one- and two-year notes authorized by the Act of March 3, 1863, which bore interest at five percent annually, were a legal tender at face value, and were issued in denominations of $10, $20, $50, $100, $500 and $1000.

[7] In the absence of efficient investment banks, the hybrid nature of these instruments allowed the government to directly distribute debt by paying the notes out to creditors as legal tender, and then relying on interest-seeking parties to eventually remove them from circulation in order to redeem them with interest at maturity.

Their issuance reflects the end of a coin-hoarding period that began during the American Civil War, and represented a return to public confidence in paper money.