Monetary Famine, Paper Money, and International Constraints on Economic Growth: The Case of Colonial Quebec

Abstract

New France, like most European colonies in the New World, suffered from a persistent shortage of metal coins. As Quebec’s imports were limited by French mercantilist policies, their standards of living were constrained by their ability to export a few primary products (mostly fur, cod, timber and wheat). These restrictions and underdeveloped financial markets limited the ability to use the capital account to import coins and tightened the balance of payments constraint. The introduction of playing card money in New France in 1685, the first use of paper money in North America, provided a means of relaxing this constraint. It produced a substitute domestic money which allowed scarce metal coins to be used to purchase imports. A balance-of-payments constrained growth model is applied to this experience, and the sources of inflation for this paper money as analyzed as well.

Keywords: Playing Card Money, Balance of Payments Constrained Growth, Colonial New France