The president and directors for the Kentucky Insurance Company promise to pay ... or bearer on demand one dollar, Lexington 16 June 1816
Money in the colonies was denominated in pounds, shillings, and pence. The value varied from colony to colony; a Massachusetts pound, for example, was not equivalent to a Pennsylvania pound. All colonial pounds were of less value than the British pound sterling. The prevalence of the Spanish dollar coin in the colonies led to the money of the United States being denominated in dollars rather than pounds. Due to almost no money supply from Britain to colonies, colonies had to issue their own paper money to serve as an exchange. In 1690, the Province of Massachusetts Bay created "the first authorized paper money to pay for a military expedition during King William's War. Other colonies followed the example by issuing their own paper currency in subsequent military conflicts, to pay debts. The paper bills issued by the colonies were known as "bills of credit." Bills of credit were usually fiat money: they could not be exchanged for a fixed amount of gold or silver coins upon demand. The governments would then retire the currency by accepting the bills for payment of taxes. When colonial governments issued too many bills of credit or failed to tax them out of circulation, inflation resulted. This happened especially in New England and the southern colonies, which, unlike the Middle Colonies, were frequently at war. Pennsylvania, however, was not issuing too much currency and it remains a prime example in history as a successful government-managed monetary system. Pennsylvania's paper currency, secured by land, was said to have generally maintained its value against gold from 1723 until the Revolution broke out in 1775. This depreciation of colonial currency was harmful to creditors in Great Britain. The British Parliament passed several Currency Acts to regulate the paper money issued by the colonies. The Currency Act of 1751 restricted the emission of paper money in New England. It allowed the existing bills to be used as legal tender for public debts (i.e. paying taxes), but disallowed their use for private debts (e.g. for paying merchants). Currency Acts of 1751 and of 1764 created tension between the colonies and the mother country and were a contributing factor in the coming of the American Revolution. When the American Revolutionary War began in 1775, all of the rebel colonies, soon to be independent states, issued paper money to pay for military expenses.