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    United States

    Continental Loan Office Bills of Foreign Exchange

    This is a thirty day sight draft bill of exchange for $24 / 120 livres tournois from the Continental Congress issued in Maryland. It was signed by Francis Hopkinson as the Treasurer of Loans for the Contnental Congress in Philadelphia and later, at the date of issue, it was countersigned by Thomas Harwood, Commissioner of the Continental Loan Office in Maryland. These bills were issued in uncut sheets of four bills redeemable in Paris in French pounds tournois at the office of the American Commissioners in Paris. If the first bill was lost at sea the owner would the send the second, then the third and, if necessary, the fourth bill. Once a bill arrived in Paris and was cashed the other bills were void. The example above is the third bill. The text states, "This third bill." assuming the first, second and the fourth have not yet been paid. The note is also watermarked "United States 3." This set of four notes was issued by Harwood on October 12, 1780. Apparently the first or second note was successfully delivered for this third note was never used, as the "pay to" portion and the number were never filled in. According to Anderson no first bill of exchange is know to survive and second bills are rare but third and fourth bills are quite common. Bills were issued in denominations of $18, $24, $30, $36, $60, $120, $300, $600 and $1,200. According to Anderson the $24 variety is quite common with a rarity of R2 (501-1,250 examples known to exist) but the Maryland Hopkinson/Harwood combination is fairly difficult to find with a rarity of a low R7 (7-12 examples survive).

    Bills of exchange were valuable instruments for businessmen who needed to make payments in foreign countries, but the Continental Congress also used these bills for other purposes. On the example listed above the text specifically states the bill was issued "for interest due on money borrowed by the United States." This was part of the national loan certificate program.

    Contenental Loan Office Certificates

    On October 3, 1776 the Continental Congress announced a plan to raise $5,000,000 for the war effort. They would make an offering to the general public of three year loan certificates in varying amounts from $300 to $1,000 bearing 4% interest payable in specie (gold or silver) or in an equivalent value of foreign bills of exchange. Congressional loan offices soon opened in every state to handle financial matters for the Treasury department. These offices offered the loan certificates, sold foreign bills of exchange and were authorized to accept other funds due to the government and to use those funds to pay government bills. On February 3, 1777, not long after the offices had opened, the government raised the interest rate on loan certificates to 6% and added several additional denominations from $200 up to $10,000. Maturity dates on these and on earlier issues were extended on an indefinite period then a third series was issued on June 29, 1777 in denominations from $200 to $30,000.

    In 1777 America obtained a 2,000,000 l.t. (livres tournois or Tournois pounds) loan from a group of French investors known as The Framers General. Other loans followed. Congress decided to use a portion of the French loans to pay the interest due on government loan certificates. Thus any investor who had advanced the government a loan, or anyone who had won a prize in a national lottery and had been paid with a loan certificate, was issued interest payments in the form of bills of exchange to be cashed in Paris. As more and more paper continental currency was being produced inflation soared and purchasing power of continental dollars dropped so there was no attraction to investors if they were to be paid in currency. The much more attractive payment option of specie was impossible for the government did not have enough gold or silver to meet its obligations and in March of 1778 the specie offer was withdrawn. Bills of exchange became the most attractive option.

    The experiment with bills of exchange did not last long. Although these bills were and continued to be essential for business payments abroad, they caused long delays for American investors who wanted their interest payments. Not only did one need to wait for the bill to arrive in Paris, but once the bill arrived the transaction did not occur for thirty days, "thirty days sight" (only "sight" bills were processed immediately on sight). Also, beyond the time element, Congress had artificially established an exchange rate, quite favorable to themselves, of 5 l.t. to $1; while the prevailing rate in America was 5.4 l.t. to $1 and in Paris it was 5.25 l.t. to $1. Individuals often tried to sell these bills of exchange to businessmen who needed to pay debts abroad but even then they were usually discounted from 10%-33%.

    In 1779-1781 continental currency collapsed. Inflation was so bad that currency held just a few days lost a significant portion of its purchasing power. For example in Maryland in January 1779 one dollar in specie equalled $8 in continental currency, by January 1780 it took $40 continental dollars while by that December it rose to $100 and by May of 1781 one dollar in specie equalled $280 continental dollars! Clearly payment in continental currency would not attract investors. Bills of exchange were also considered undesirable. Forced into a financial crisis the Continental Congress began to issue indented draft certificates. These were basically I.O.U.'s issued by government departments for all types of payments. They were most actively used by the quartermaster general. Usually items needed for the military would simply be seized and the owner was left with a certificate promising future payment.

    See: William G. Anderson, The Price of Liberty: the Public Debt of the American Revolution, Charlottesville: University of Virginia Press, 1983, pp. 6-10 aand 82-89; Edwin J. Perkins, American Public Finance and Financial Services 1700-1815, Columbus: Ohio State University, 1994, pp. 101-105 and 317-323. For exchange values of Continental Currency see: Eric Newman, The Early Paper Money of America, third ed., Iola, WI: Krause, 1990, p. 474 and Henry Phillips, Continental Paper Money, Roxbury, MA: Woodward, 1866, pp.206-209 (reprinted in Historical Sketches of the Paper Currency of the American Colonies, New York: Burt Franklin, 1969).