Bank of North America

The Bank of North America was the first fractional-reserve commercial bank in the United States. It was a privately owned central bank modeled after the Bank of England.

History

The bank began as a bill introduced by Robert Morris, the Superintendent of Finance and the leader of the nationalist forces and the drive for fiat paper notes in the Continental Congress, and was chartered on May 26, 1781, and opened its doors on January 7, 1782.

The bank "received the privilege from the government of its notes being receivable in all duties and taxes to all governments, at par with specie. In addition, no other banks were to be permitted to operate in the country. In return for its monopoly license to issue paper money, the bank would graciously lend most of its newly created money to the federal government to purchase public debt and be reimbursed by the hapless taxpayer. The bank was made the depository for all congressional funds. The first central bank in America rapidly loaned $1.2 million to the Congress, headed also by Robert Morris."

In addition to Bank of North America paper, Morris issued his own notes, Morris notes. The notes were payable in specie on demand. Morris warrants were also issued, payable usually in thirty to sixty days from time of issue. The notes and warrants, amounting to approximately $400,000 in August of 1782, never gained the confidence of the public and were retired less than a year after first being issued.

"Despite Robert Morris's power and influence, and the monopoly privileges conferred upon his bank, it was perceived in the market that the Bank's notes were being inflated compared with specie. The market's lack of confidence in the inflated notes led to their depreciation outside its home base in Philadelphia. After a year of operation, however, Morris, his political power slipping after the end of the war, moved quickly to end his Bank's role as a central bank and to shift it to the status of a private commercial bank chartered by the state of Pennsylvania. By the end of 1783, all of the federal government's stock in the Bank of North America, which had the previous year amounted to 5/8 of its capital, had been sold by Morris into private hands, and all the U.S. government debt to the bank had been repaid. The first experiment with a central bank in the United States had ended." The bank, of course, continued to issue discounted notes to the federal government.