While residents of high-income countries today are accustomed to a single national currency, much more complex currency systems have existed in other economies and in other times. The early nineteenth-century U.S. had a highly complex currency system. During the Free Banking Era from 1837 to 1866, states, cities, counties, private banks, and private merchants all issued currencies. An estimated 8,000 banks were issuing currencies in 1860 (see images of various bills).
Less commonly recognized is that businesses in the U.S. seemed to have continued to use colonial currency systems well into the nineteenth century. For example, in upstate New York State in 1834, commodities such as eyeglasses, wood, thread, and sand were being priced in shillings, despite the colonial New York pound being retired in 1793.[1] A business arithmetic text published in 1849 included a section on “reduction of currencies.” Some practice questions from the text:
Change 74£. 1s. 6d. of the old currency of New York to United States money.
Change 129£. of the old currency of Pennsylvania to United States money.[2]
These are odd questions to be asking if those “old currencies” had actually been retired a half-century earlier. At least some price evidence indicates that such currencies were still relevant for transactions.
Europe may soon demonstrate how modern, high-income economies work with complex-currency systems. Modern information and communications technologies allow much faster transaction search and execution. They also support much more complicated transactions. On the other hand, key human factors such as trust, personal relations, and behavioral inertia have changed much less than technologies. Multiple or parallel currencies might not be a complete disaster. Let’s hope that a complex currency system works as well now as it did in the United States early in the nineteenth century.
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Notes:
[1] See, e.g., Report of the Inspectors of the State Prison at Auburn, 1834.
[2] Greenleaf, Benjamin (1849) Introduction to The national arithmetic: on the inductive system combining… (Boston: Robert S. Davis) p. 195.