Bills Of Exchange
Table of Contents

Overview

The colonists imported their manufactured goods from Britain, payment for which had to be made in sterling funds. The colonists gained control over sterling funds as the result of their exports. In the Southern colonies trade between the colonies and Great Britain was direct. A Virginia planter might export his tobacco to Britain, consigning it to a commission merchant who would sell it and place the proceeds to the Virginia planters account.

The proceeds produced a fund of sterling money upon which the Virginia planter might draw. Perhaps he accompanied the shipment of his tobacco with an order for goods. His correspondent in Britain would buy the goods and debit his account for the cost. The goods would then be shipped to the colony when the tobacco ships again returned to Virginia. Here no more than a bookkeeping transaction was necessary.

If, however, the Virginia planter wished to transfer some of his balance with his London correspondent to Virginia for use in the colony, he might draw a bill of exchange on his correspondent for, say, £100 sterling. The bill was in the nature of an order to his correspondent to pay £100 sterling. The planter then sold the bill at the going rate of exchange to a fellow Virginian who had need of sterling funds to pay an obligation in Britain. The purchaser forwarded the bill to his creditor in Britain, who presented it to the correspondent of the Virginia planter for acceptance, for the custom was to draw bills of exchange payable thirty days after sight. If the correspondent accepted the bill, the creditor then held it for thirty days, at the end of which time he presented it for payment. The rate at which sterling bills were sold in the colonies was determined at any one time by the effective supply of, and demand for, sterling bills.

The basic question, however, concerning the effect of currency issues upon exchange rates revolves around the effect of such issues upon the demand for, or, to a lesser degree, the supply of, bills of exchange. In the case of New England and the Middle colonies, where direct trade between the colonies and Britain was at a minimum, it was necessary for the colonies to have recourse to a roundabout trade to procure the necessary bills of exchange and specie to pay their adverse balances with Britain.

Links

Reference

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License