Use of Interest-Bearing Currency in the Civil War: The Experience Below the Mason-Dixon Line

Abstract

This paper examines the case of interest-bearing notes in the Confederate States of America which were not legal tender, but which were said to circulate. Like other known episodes, the Confederate experiment does not support the legal restrictions theory of the demand for money. There is no evidence that these instruments circulated readily, and some evidence that their limited circulation fell short of that of competing noninterest-bearing notes--characteristics inconsistent with legal restrictions theory. The episode displays other characteristics inconsistent with or not encompassed by the major competing explanations of why interest-bearing notes do not circulate.

JEL Classification: N21