Paper Money in Early New South Wales

In the first few years of the newly founded colony of New South Wales, the need for money as a medium of exchange was not great. Survival was foremost in the minds of the the administrators, the soldiers of the New South Wales Corps and the convicts. Drought, food shortages, a lack of accommodation and the challenge of adapting to a new land and climate were far more important than any concerns about a minor nuisance such as a lack of ready money.

By the mid-1790's, the drought had eased and crop harvests were sufficient to feed the population. The colony's future was safe. By then, along with the convict transport fleets, a steady trickle of free settlers began to arrive. Three separate groups emerged - the convicts and their administrators, the producers (farmers and tradesmen) and the merchants (storekeepers and traders). Each group could be of benefit to the others, only if suitable mediums of exchange could be established.

The Government Store, known as the Commissariat, was a logical starting point. In return for goods and produce, the Commissariat issued Store Receipts which showed the producers name, the type and quantity of goods delivered and the price paid. These receipts were to be redeemed periodically for Bills of Exchange on the Treasury in England - the redemption dates were fixed by the authorities.

Although not intended for general circulation, store receipts were negotiable and quickly gained acceptance as a medium of exchange. A local producer had two choices. The first was to save up the store receipts, consolidate them for a Bill on the English Treasury, and forward the Bill to England to create a credit which could be used to purchase supplies - a process spanning several months, often more than a year.

The second choice was more immediate. The store receipt could be taken to a merchant and used to obtain supplies locally. Any unused balance could be paid by the merchant in the form of a private currency/promissory note or retained as a credit. A shortage of coins usually prevented change being given in specie. The merchant, over time, acquired a number of these transferable store receipts and could either consolidate them or use them to replenish stocks locally. A cycle of circulation was thus created.

Small transactions, such as the purchase of a loaf of bread (around 9 pence in the early 1800's) presented a problem which was overcome by the use of small denomination, private currency notes. These notes were issued by reputable individuals and businesses and were used in the same way as banknotes are used today. As more small denomination coins became available, the authorities gradually increased the minimum value for which private currency notes could be issued.

There were other sources of paper money which circulated in the colony. Banknotes and bills from England and Ireland were utilised. Cheques were a very important part of commerce, being used for a large proportion of currency transactions (there are reports that at times, 9 out of 10 transactions were settled by private of bank cheque. In 19th century Australia, the use of hand-written and printed cheques, per head of population, was one of the highest in the world.

As the colony expanded, additional Commissariat offices were opened at Parramatta, Liverpool, Windsor, Bathurst, Newcastle, Hobart Town and Port Dalrymple - the last two in Van Diemen's Land. The transfer of funds over long distances within the colony was enabled by Bills of Exchange drawn on the issuing Commissariat office (not on the English Treasury).

To pay the soldiers of the New South Wales Corps, and to pay for supplies, military commanders issued Paymaster's Notes. Debts incurred by the regiment were paid for using promissory notes with a variable, handwritten value while the soldiers were paid with fixed denomination currency notes. These notes circulated in the same way as Commissariat store receipts and were consolidated quarterly for bills on either the English Treasury or the London agent of the regiment. Naval vessels visiting the colony also issued military paymaster's notes for their supplies. These were consolidated for bills on the Commissioners for Victualling His Majesty's Navy.

In 1810, Governor Macquarie established the Colonial Police Fund - the forerunner of a Colonial Treasury. Funds were received from fines, licenses, harbour dues, rentals, duties, etc., and were used to pay for public works - roads, bridges, etc., - which lay outside the penal administration's responsibility. Fixed value Police Fund Notes joined the varied list of circulating paper money used in the colony.

The issue of Commissariat store receipts was suspended for two periods. Between July, 1813 and March, 1815, Deputy Commissary General Allan issued his own private, fixed value promissory (currency) notes. Under this system, the notes were paid directly to the producer and Allan fully recouped their value from the government. There was no intermediate use of a receipt document. Governor Macquarie stopped the practice when it became clear that Allen was the main beneficiary whenever a note was lost or destroyed and thus was not later consolidated.

Between February, 1819 and June, 1820, Deputy Commissary General Drennan implemented a non-transferable type of store receipt which could be redeemed for Private Commissariat Currency Notes. Problems in travelling to a location where the non-negotiable receipts could be consolidated and suspect accounting practices in dealing with cancelled and lost receipts saw Drennan removed from office. He was later sent back to England, under arrest. The system of transferable store receipts was reinstated with some improvements to stop their theft and forgery.

The vast majority of commercial transactions conducted within the colony in the early decades had come to depend on a complex system of credit. While far from ideal, nevertheless the system worked. Commissariat store receipts, bills of exchange on the English Treasury and other government offices, Police Fund notes, private promissary notes, commissariat currency notes, Paymasters bills and notes, and banknotes from England and Ireland all played their part in a system of exchange which was plagued by a lack of hard currency - specie.

Improvements in the situation were slow. The introduction of banking establishments (the first being the Bank of New South Wales in 1817) and an improved flow of English coins in the second half of the 1820's gradually eased the almost total reliance on non-traditional mediums of exchange which had been forced to make do.

As the number of banking establishments grew, so to did the number and variety of banknote issues. The gold rushes of the 1850's saw the number of circulating banknotes increase enormously. Every person who accepted a note from a bank in exchange for gold or sovereigns was effectively lodging an interest free deposit. The banks' only expenses were the costs of engraving and printing the notes. Although they had to keep sufficient funds to redeem the notes as required, the banks made a tidy profit by lending out part of the funds represented by their note issues.

Source:
Coinage and Currency in New South Wales 1788-1829 - Dr W J D Mira, 1981.