NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Farley Grubb

NBER Working Paper No. 21881
Issued in January 2016, Revised in March 2016
NBER Program(s):Development of the American Economy

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.

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Document Object Identifier (DOI): 10.3386/w21881

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