A requiem for the Continental on the Semiquincentennial

America’s first national currency was a mess

Happy 250th birthday to the United States of America!

It’s safe to say our country today looks different than it did a century or a semiquincentury ago (we have, for example, evidently gotten good at football soccer?). But one thing hasn’t changed: America loves a monetary experiment.

This week a consortium of more than 140 companies including Visa, Mastercard, BlackRock, Coinbase, and Stripe signed on to back Open USD, a new dollar-backed stablecoin operated by an independent entity called Open Standard.

The internet is already alight with comparisons to Libra and The DAO. I’m going to resist that reflex. Open USD’s details are still emerging, and we don’t know much about the mechanics of governance, redemption, and reserves. So rather than force a comparison to a project we can’t yet fully see, we’re going to look at some lessons from America’s first quasi-consortium currency: the Continental dollar.

Rethinking the Continental

Writing a declaration of independence is simple. Piecing together a ragtag national army from butchers and farmers isn’t even all that complicated. But financing a war! Financing a war without immediate heavy taxation is another matter entirely.

Congress issued roughly $200 million worth of Continental dollars between 1775 and 1779 to finance the Revolutionary War, mainly covering soldiers’ pay and supplies. The currency is often used as a cautionary tale: Congress issued too much paper, prices soared, the currency plummeted, and to this day we still use the phrase “not worth a Continental.” Such was the widespread distrust of paper money following the Continental experiment that the Constitution of 1787 prohibited states from issuing bills of credit and omitted any explicit congressional power to emit paper money.

Economist Farley Grubb offers a different interpretation with useful lessons for today’s monetary experiments. He interprets the Continental dollar as functioning like a zero-interest bearer bond: each note promised redemption in Spanish silver dollars (or equivalent gold or silver) at future dates set by Congress. The notes however would trade at a discount until their maturity date. States would later gather the notes when collecting taxes, remit them to the Continental Treasury, and the bills would be destroyed. Literally burned. This let Congress finance the Revolutionary War immediately while spreading out repayment over time through future tax collections.

Congress established clear redemption schedules for the states with the first two emissions of notes. The first was to be redeemed in four annual installments beginning in 1779. The second emission of notes was to be redeemed in another four annual installments beginning in 1783. But for the next eight prints of Continental notes, Congress never approved explicit redemption schedules. Grubb suggests one contributing factor was that New Jersey delegate Richard Smith — who actually understood the mechanics of the system — left Congress and took his institutional knowledge with him. The ultimate group project fail. Congress and its treasury committee each assumed the other would be responsible for setting the schedule. So the schedule was never completed.

That omission created widespread uncertainty about the currency. As Congress authorized the printing of more notes, the American public extrapolated from the original schedule, pushing expected redemption dates as far out as 1818. Grubb argues that this produced a steep time discount: notes issued in later years traded well below face value from the moment they were issued, a decline historians interpreted as currency depreciation. Congress attempted to undo the damage in 1779 and 1780 by retroactively imposing fiscally unrealistic redemption schedules. Instead, those changes undermined credibility and accelerated the currency’s collapse.

Lessons for the next Continental

There are three clear lessons here as we embark upon new and scintillating monetary experiments:

Ambiguity creates assumptions: The Continental dollar worked reasonably well at first because the redemption schedules for the initial emissions were clearly defined and publicly communicated. When Congress failed to specify redemption dates for the next eight emissions, the public had to guess when the next schedule started. This created a steep time discount that made later bills worth far less than face value from issuance. Any monetary project must clearly document and communicate its redemption, reserve, and governance mechanics upfront. Ambiguity invites extrapolation and expectation becomes reality.

Credibility is earned slowly and lost quickly: In 1779 and 1780, Congress retroactively altered redemption terms on already-issued dollars with unrealistic new schedules. This destroyed credibility and triggered the currency’s collapse. The same mistake has doomed modern projects — such as Celsius unilaterally freezing withdrawals. Once participants accept a currency based on stated rules, the issuer changing those rules after the fact signals that promises are not binding.

Collaborative efforts require collaboration: Redemption of Continental notes depended entirely on the states who levied the taxes, collected the notes, and remitted them to be burned. Yet when Congress rewrote the schedule in 1779, it set terms without regard for whether the states could plausibly meet them. The new timetable implied tax levels many multiples beyond anything the states had ever collected. Strong monetary systems require that the parties who must execute the rules have a genuine role in setting them.

The Continental dollar reminds us that America’s monetary experiments have always been bold. As we mark the nation’s 250th birthday, what we have learned from the Continental is that sound money requires clarity, credibility, and genuine coordination. That wisdom is worth carrying with us as we celebrate two and a half centuries of independence. Let freedom ring.