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Crisis in the Colony of New South Wales

When the Colony of New South Wales was established in 1788, no provision was made for an internal currency, resulting in an unstable period of currency arrangements and experiments. The colonists relied on the barter of produce, goods and services, and other makeshift currencies such as rum, as all spirits were then called.

Coin was very scarce in the colony, a scarcity also suffered in England owing to its shortage of silver. The Spanish dollar was a major international currency of the time and a shipment of Spanish dollars was sent from England in 1792. Coins originating from other countries were also used in the colony, including Dutch guilders and ducats, Indian mohurs and rupees and Portuguese johannas. The majority of this coin left the colony as a result of trade with visiting merchant ships.

Lachlan Macquarie, the colony's Governor from 1810 to 1821, attempted to remedy the coin shortage by the creation of the holey dollar, which was a Spanish dollar whose centre had been removed, producing two coins: a ring or holey dollar and a dump or core. The two coins were reminted to the value of 5 shillings for the holey dollar and one shilling and threepence for the dump. Despite severe penalties for exporting this coin, it remained scarce. Governor Macquarie also oversaw the establishment of the colony's first bank. In 1817, the Bank of New South Wales opened in Macquarie Place, Sydney in premises leased from the emancipist businesswoman, Mary Reibey, who is now portrayed on the $20 banknote.

Holey dollar, 1813.

On loan from the State Library of New South Wales.

The Commissariat, which controlled the issue of stores to troops and convicts, bought goods produced by private enterprise and paid with store receipts. Until the 1820s the receipts served as a medium of exchange, although they were frequently for large amounts. The Commissariat began to issue its own banknotes that were equivalent to those of the Bank of New South Wales.

Owing to the persistent shortage of coin and the limitations of other currencies, promissory notes or IOUs also came into general use. Squatters' cheques were a form of promissory notes in specific districts; however, they were vulnerable to forgery and had no collateral backing. Promissory notes became known as shinplasters, a term describing a paper currency thought to be only worth soaking in vinegar as a dressing for bruises.

The Currency Act was the first act passed by the Parliament of New South Wales. Enacted on 28 September 1824, it formalised the British sterling as the official currency system of New South Wales. ‘Pounds, shillings and pence’ remained in place as the basis of Australia's currency system until the introduction of decimal currency in February 1966.

Back of a British £5 coin, 1887.

Reserve Bank of Australia Archives, MU-000642.

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