Fixed exchange rates and the quantity theory in colonial America

Abstract

The fact in the middle colonies is really this. On the emission of the first paper money, a difference soon arose between that and silver; the latter-.-being fit for a remittance. This property having soon found its value by the merchants bidding on one another for it, and a dollar thereby coming to be rated at eight shillings in paper money of New York, and 7s. 6d. in paper of Pennsylvania, it has continued uniformly at those rates in both provinces now near forty years, without any variation upon new emissions. . . . . .It has indeed been usual, with the adversaries of a paper currency, to call every rise of exchange with London a depreciation of the paper; but this notion appears to be by no means just. . .as a proof of this, it is a certain fact, that, whenever in those colonies bills of exchange have been dearer, the purchaser has been constantly obliged to give more in silver, as well as in paper, for them; the silver having gone hand in hand with the paper, at the rate above mentioned; and therefore it might as well have been said, that the silver was depreciated. Benjamin Franklin Remarks and Facts Relative to the American Paper Money (1764, p. 351)