Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1776
I use denominational structure (the spacing and size of monetary units) to explain how the Continental Congress attempted to manage a successful common currency when sub-national political entities were allowed to have separate currencies and run independent monetary policies. Congress created a common currency that was too large to use in ordinary transactions. Congress hoped this currency would be held for post-war redemption and would not circulate as money during the war. As such, it would not contribute to wartime inflation. By contrast, individual state currencies were emitted in small enough denominations to function as the domestic medium of exchange.
The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Farley Grubb, “Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779,” in Nathalie Champroux, Georges Depeyrot, Aykiz Dogan, and Jurgen Nautz, eds., Construction and Deconstruction of Monetary Unions: Lessons from the Past (Wetteren, Belgium: MONETA, 2018), pp. 15-34.