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The Nature and Necessity of Paper Currency

            Up until the era of the 1700's the monetary system was dominated with the usage of gold and silver coins as a form of exchange between countries and colonies. Colonial Americans found there to be a limited supply of said coins and the only way to obtain these coins was through importing goods from foreign countries. There appeared to be a constant unfavorable balance of trade due to the fact that Colonial America was never able to produce enough currency to buy goods needed for economic growth. Prior to 1723 Benjamin Franklin noted that foreign trade and exchange had stripped the colony of its gold and silver coins leaving American colonists with a lack of an adequate supply of currency. Pennsylvanians had exchanged a substantial amount of their gold and silver coins for manufactured goods from Europe. Thus it is concluded that for economic growth to occur there must be a new form of currency. .
             Colonists lacked in the supply of currency because colonial America was not able to produce coins for exchange on their own. In order for them to obtain gold and silver coins they must trade with other countries. Franklin states that unless some measures are taken to prevent the export of gold and silver coins, foreign trade could possibly lead to temporary shortages of gold and silver, therefore deterring inner trade within the colony. He states that a lack of money to conduct trade within the province carries a heavy cost because the alternative to paper money is not gold and silver coins but exchanging goods. Which then leads to the local exchange cost to increase thus leading to lower wages, employment and immigration. Money scarcity also causes high local interest rates, which leads to reducing investment and slowing development and discouraging trade. Consequently the solution for all the above problems was solved with the usage of paper money.
             Franklin believes that issuing a new form of paper currency will improve their situation.


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