Spring 2001

When Foreign Coins
Circulated Freely

by

Gerard Muhl

Living close to the border of Canada I will from time to time get a Canadian quarter or dime in change. Though at times inconvenient I know that I can pass the coins on at my next transaction with little problem. Only once can I remember Canadian money being refused, and that was when I tried to purchase stamps at the U. S. Post Office. Circulating foreign money may seem a bit strange today but it was in fact declared official legal tender in America for the first sixty-four years of our history.

In 1793 our new coinage law gave legal tender status to Spanish and large silver coins of France. The status was to be temporary until the Philadelphia mint could meet the demand for a circulating medium. At that time it was estimated it would take the mint three years to strike enough coins, and then the foreign pieces could be withdrawn. In fact, the law was renewed in 1806, 1816, 1819, 1823, 1827, and 1834 until foreign coins were finally demonetized beginning in 1857.

In 1830 approximately one in every four coins in circulation was made in one of the numerous Spanish colonial mints. Nearly five million dollars in Spanish coins thus circulated. These coins had been valued in British terms for at least a century with a one-reale piece assumed to be worth 12½ cents and being called a shilling to a New Yorker. Even though British-made silver coins seldom circulated in the new nation, the Spanish fractional coins took their place and names.

In the depression following the War of 1812 specie payments were suspended and coin disappeared. Thus notes were issued by banks and municipalities to facilitate change making. The village of Cooperstown, New York, for example hired local printer H. & E. Phinney to print fractional scrip with valuations of one, three, six, and twelve and a half cents-the last note being called a shilling and replacing the one-reale piece. Also common in other towns were notes with denominations of 6¼¢ and 12½¢.

The decimal system in coinage made slow progress before the Civil War because Spanish and now Mexican and South American coins circulated with legal-tender status. The law of 1834 added to legal-tender status large silver coins of Mexico, Peru, Chili, Central America, and those "re-stamped in Brazil," as well as 5-franc pieces of France. They all were to be accepted as equal to one hundred cents with the one exception being the 5-franc which was rated at 93½ cents each.

Prices in the 1840s in 5 and 10 cent units were rare. Common prices were 6¼, 12½. 18¾, 25, 37½, 50, 62½. and 75 cents. The Rochester, New York, Advertiser newspaper expressed its cost in shillings through the Civil War. The New York Stock Exchange expressed (and still does) prices in eighths of a dollar or one "bit" of the piece of eight. Conveniently the one bit or reale was pegged at 12½¢ and was known as a shilling in the East. (The term "bit" was more common in the Western States and occasionally is still heard in prices of "two bits"). Postal rates in the 1840s were adjusted to Spanish denominations with rates for certain distances being 6¼¢, 12½¢, and 18¾¢.

Often in cities, merchants looking for a little extra profit would drop the fractional remainder with the reale passing at 12¢ and a half-reale (medio) at 6¢. If a customer bought an item priced at ½ bit and paid with a bit he might get a half dime back instead of 6¼¢. The merchant made an extra 1¼¢-not much until it is realized that a hard-working laborer of the time might only earn 25¢ for a twelve-hour workday. Likewise the dime became known as the "short bit." When it was passed out as change instead of a 2-reale "shilling" worth 12½¢.

In 1843, New York City banks established a lower scale of values on fractional foreign coins circulating as legal tender. (They felt they could do this because the 1834 coinage law mistakenly omitted the term "fractional parts" of Spanish coins and thus some people wondered if they really were legal tender.) The 2-reale, reale, and ½-reale would only be taken at 23¢, 10¢, and 5¢ respectively. In the same year, claiming that many foreign coins were badly worn and thus contained less silver, the U. S. Post Office followed the lead of the banks. Thus the coins had a different value to banks than to merchants. It was therefore in the interest of the consumer to shop with foreign coins but to bank and post letters using U. S. Mint produced coins.

The Rochester City Directory of 1849-50 offers an interesting insight as to what foreign coins a merchant might encounter and what its conversion value should be. Similar charts were likewise published for other cities at the time.

Coin Conversion Tables for 1849-50 from Rochester City Directory

GOLD COINS

U. S.

ENGLISH

SPANISH

FRENCH

MEXICAN AND SOUTH AMERICAN

PROMISCUOUS COINS

SILVER COINS IN ROCHESTER 1849-50

Each merchant would have to be a numismatist to recognize each of these foreign coins. To make things a bit easier, merchants could buy coin-weighing scales with the counter weights in the shape of, and bearing the same devices as, the actual foreign coins they were to be weighing. It is also odd to note that Carolina and Georgia five dollar gold coins would only be accepted at $4.75 as they were known to be of full weight and purity even though they were struck by private companies.

The English gold sovereigns also had two prices quoted-the coinage from early 1600s (with dragon) being quoted less because of wear. Oddly the older silver dollar-sized foreign coins received a greater premium than newer pieces. The older unblemished (no Chinese chop marks) Spanish pillar dollars passed at a 2% premium while the Mexican 8-reales only received a ¼ to ½ per cent premium depending on wear. Many of these large pieces stayed in bank vaults and only moved by the bag-full when large transactions were to be made; why spend a more valuable currency when the fractions of the Spanish and Mexican coins were trading at par or up to a 2% discount.

Where foreign coins circulated freely and where almost no one could be an expert on all types or design it was inevitable that counterfeiting would become common. The first recorded case in western New York came in 1811 when Rochester's first white settler Ebenezer Allan was acquitted of making Spanish Pillar Dollars in a "mint" just across the border in Canada and then spending them in his former homeland.

In 1845 another rash of counterfeit Spanish fractional coins were turning up in eastern suburbs of Rochester. So bad did it become that the citizens of Palmyra formed a committee to find and stop the bogus money changers. Six months passed with no clues and yet the Spanish coins kept turning up. Finally federal marshals from Buffalo were called in only to discover that two members of the committee to stop counterfeiters were actually members of the gang itself. Soon the gang was behind bars although one member did escape with dies for Spanish 8-reale pieces. Perhaps he set up his mint elsewhere. The Palmyra product was of fairly good quality, the coin die-struck on brass blanks and then plated with actual silver.

To see what circulated in the 1850s in Rochester, and by analogy in other mid-sized cities, it is well to look at what the local newspapers of the time were saying. The following comments appeared in the Rochester Daily Democrat:

Soon a premium was being paid for any coin that could be turned in to local merchants. But, little hard cash was forthcoming and, it stayed scarce until after the Civil War.

In 1857 Congress finally repealed the laws giving legal tender status to any foreign coins then circulating in the United States. The Mint agreed to accept for exchange any Spanish or Mexican coins at the rate of 25¢,12½¢, and 6¼¢ for 2 reales, one-reale, and half-reales regardless of wear. Coins could be turned in for that rate only at the mints or sub-reasury offices. One catch, however, was that these worn silver coins could only be exchanged for two years, and only for the new copper-nickel 1857 or 1858 flying eagle one-cent pieces. the mint thus made and sold over 75,000,000 one-cent pieces and recoined over two million dollars worth of Spanish coins into American dimes and quarters. The seigniorage profit on striking and exchanging copper-nickel coins for silver covered the loss involved in buying extremely worn Spanish coins. The exchange of copper for silver also paid the entire operation of the mint for 1858.

Since banks and post offices were only paying 20¢, 10¢ and 5¢ for Spanish fractional silver of 2R, 1R, and ½R. there was profit to be made for anyone getting these coins to the Mint in Philadelphia.

The great foreign coin silver bullion rush was on. Wall Street brokers began advertising as much as 23¢ for a 2-reale coin. Thus a profit of between 8% and 20% was to be made and many dealers were out to make it. Still many Spanish coins were merely sold as bullion or turned in at the lower rate at the Post Office.

With so much foreign silver being exchanged for one-cent pieces commercial markets became flooded with the new small cents. (Cents before 1857 were approximately the size of a half-dollar but in pure copper.) Since this was a period before 7% sales taxes, before the time P. T. Barnum introduced prices always one or two cents below the next decimal number (i.e. 29¢, 39¢, 98¢), and since the A&P food markets only began pricing in units of less than a nickel, the one-cent coins had limited usefulness. They also had limited legal tender status and so banks would not accept unlimited quantities of them. By 1859 banks were discounting the flying eagle cents between 4% and 5%!

The Coinage Act of 1857 did a good job removing foreign coin from circulation with one blatant exception. In the 1880s unscrupulous employers bought Spanish "dollars" from brokers at a discount and then used them to pay out as wages at "face value" of 100 cents. Many were paid to miners in northern Pennsylvania and to factory workers in border towns in New York just over the Pennsylvania line. Retailers were forced to accept these foreign coins but raised their prices to make up for any loss. Since banks refused them, the merchants sold them to brokers at a discount and the cycle began all over. The bullion value of a Spanish dollar or piece of eight in 1883 was at about 85¢ . Thus the coal boss could pocket a profit of near 15% on his dealings. Soon, however the falling price of silver and the ever-increasing volume of coins shipped from the various American mints drove all foreign coin from circulation.

A colorful era had ended—one though, which few Americans would want to repeat.

© 2001, Gerard Muhl

[Photographs of the following coins will be posted shortly]

Charles II of England half Crown coin. Though struck in the 1660s, worn copies circulated in the U. S. They are about the size of the half dollar.

After Mexico won its independence, it issued 8-Reale coins to the same standard as did Spain. The design now portrayed the Mexican Eagle.

United States 1803 $5 gold piece. Representing about 2 weeks labor, these coins seldom circulated.

1827 U. S. Mint issue 50¢ piece. This coin represented a good day's work at the time. They seldom circulated, however, and were kept by banks to back up paper notes they issued in higher denominations.

Counterfeit coins circulated and copper examples were accepted by merchants as long as they were about the size and weight of official coins.
Upper - Silver-plated brass Spanish 2-reale piece, perhaps made in Penn Yan.
Lower - 2 British halfpennies struck in Kingstown, New York.

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