Today in 1782, the Bank of North America opened. The brainchild of financier Robert Morris, it was the first central bank in the United States.
By 1782, the financial situation in the states was catastrophic. During the War of Independence, Congress had issued paper money, the Continental, which depreciated rapidly. At the same time, states created their own paper currencies called “bills of credit,” and punished creditors by passing laws that permitted debtors to pay in the debased currency. By 1781, the Continental was so worthless it ceased to circulate.
After a 1781 proposal by Morris, the Confederation Congress agreed to charter the bank in Philadelphia. Morris’ pitch was that by adopting a British model of financing, the fledgling confederation could stay afloat financially and avoid the financial calamities of the past.
Partially funded by investors in France, the bank opened under a charter that called for the distribution of 1,000 shares of stock priced at $400 each. The notes issued by the bank were convertible into specie, bearing the name of Morris himself.
Morris also oversaw the creation of the first mint operated by the United States, which struck the Nova Constellatio currency in 1783. The new coins were based upon a decimal system, an idea given credibility by Thomas Jefferson. In a report entitled “Notes on the Establishment of a Money Unit and Coinage for the United States,” Jefferson endorsed Morris’ plan to use the system for the first coins, and Congress agreed.
Since the bank agreed to lend most of its new money to the Confederation, all taxpayers would be forced to pay the principal and interest. While the inflated currency caused economic ruin, Morris provided cheap credit to his political allies while the bank’s currency severely depreciated in value by 1783, and bank was privatized.
The advent of the Bank of the North America served as a lasting precedent because it brought British-oriented mercantile central banking to the United States for the first time. Even after the bank went private, the friends of the national banking system would soon score another victory in 1791, when the First Bank of the United States was created by the first Congress.