Money to pay the troops

 details below

In the beginning . . .

The settlement of Australia by Europeans began with the departure of the First Fleet from England in 1787.  The English Government provided none of the normal implements of commerce and trade, such as coins and banknotes. This was a time of severe currency shortage in the United Kingdom, with tradesmen's tokens, countermarked coins, bank tokens and other money of necessity circulating freely. No coinage was available to England's colonies. Officials of the new colony would be paid in produce from the company store and even free citizens would have little need of money.

When Captain Arthur Phillip, Governor of the new settlement, arrived in Sydney Cove in 1788 with eleven ships and 1,487 people, including 759 convicts, the small colony was virtually penniless. Apart from 300 pounds in currency held by the Governor, the only coins available were those carried in the pockets and purses of the passengers. It was not foreseen that the small colony would almost starve to death because of drought, poor soil and various other problems which made it impossible for the settlement to become self-sufficient.

The first fleet brought sufficient provisions, with careful rationing, to keep its passengers alive for only two years. Their survival relied on the ability of the convicts to work the land and harvest crops. However, no-one had made allowances for the lack of farming experience, the unfamiliar soils or the harsh climate they found.

The first year's crop failed and most of the next year's harvest was required to replenish seed stocks. Draft animals and proper farming equipment were not available - it was more than 15 years before a plough was used in the colony. For the first five years the colony lived on the edge of starvation. The prolonged drought forced Phillip to spend some of his hoard of pounds to obtain supplies from Cape Town.

In 1792 the rain finally came and a successful harvest enabled the colony to become self sufficient in food production. In an ironic twist, it was only after this that trading ships from distant lands began to arrive, bringing with them the colony's first 'consumer goods' - clothing, boots, butter, tea and rum. The colonists now required some form of currency to pay the traders for the goods delivered. Attempts to induce the ships' captains to accept promissory notes (which could only be redeemed on the next visit to England), failed as they wanted cash to buy fresh cargos on the way.

The colonial authorities back in England had no inclination to send coinage to the settlement, knowing full well that it would be immediately spent on trade goods and disappear out of the colony within weeks of its arrival. Australia had a balance of payments problem from the very start.

Cut Dollars.

The Australian way of cutting the dollar was different from the American 'pieces of eight'. A & G equalled 1 shilling and six pence. (15 cents). B C D & F were valued at six pence each (5 cents), E was worth 1 shilling (10 cents).

• The practice of cutting Spanish dollars into smaller segments to provide a fractional currency was a well accepted practice in many countries by the time the colony was established at Sydney Cove. The practice led to the famous term 'pieces of eight', where the original coin was quartered, and then each quarter segment was halved, leaving eight, approximately equal, pieces. 
• The American term 'two bits', is derived from two of these pieces being equal to quarter of a dollar or 25 cents.

Holey Dollar see photos above

Macquarie's initiative dramatically increased the number of coins in circulation and distinguished them as local currency, therefore deterring their removal from the colony on departing trading ships. Not only did the coins solve the immediate currency problem, but Macquarie also made a substantial profit in the process. He had paid four shillings and nine pence for each silver dollar, but the new face values totalled six shillings and three pence.

Obverse – Bust of King George III laureate facing right. Around, incuse on a broad rim: GEORGIUS III D:G: REX (George the third, by the grace of God, King).	Reverse – The back of the coin depicts a seated figure, Britannia. Impressed into a raised rim is the legend BRITANNIA 1797.

Called Cartwheel pennies they were big, ugly and heavy, and Australia's first official coins. The 'Cartwheel' pennies were not received enthusiastically. Historically, however, they are magnificent.  They were the first coins officially exported to the colonies and included the first copper pennies ever struck in England.  They were also the first English coins to be struck using steam power.

The coins were dated 1797 and 1799 and all bore a rather unflattering portrait of George III on one side and Britannia on the reverse.

Members of the New South Wales Corps had the ability to raise capital by borrowing against their regimental pay, which was accumulating back home in England. It was this facility which enabled the elite of the Corps to snatch control of trade in the colony and establish rum as the most common currency.

This happened in 1793 after the arrival of the American trading ship, the 'Hope', with 7,500 gallons of rum in her cargo. The other goods she carried were desperately needed but the Hope's incorrigible captain insisted that he would sell nothing to the colonists unless they first bought all of his rum. The New South Wales Corps officers saw this as an opportunity rather than a rort and formed a syndicate, with regimental paymaster John Macarthur at it's head, pulling the necessary financial strings.

They bought the cargo and distributed it at a huge profit. The vast pool of rum flooded into the market place at grossly inflated prices and at once became a means of exchange. For their efforts, the New South Wales Corps were immediately dubbed the 'Rum Corps', a name which stuck until their recall to England in 1810. 

• The rich pickings they made from that first deal gave them the power to monopolise almost all trade, particularly that in rum (the name given to all spirits), for the next 17 years.

A well documented case connected with the rum trade was the construction of Sydney's (and Australia's) first hospital - more commonly known as the Rum Hospital. Built on the orders of Governor Macquarie between 1810 and 1816, the contract was let out to three entrepreneurs, D'Arcy Wentworth, Alexander Riley and Garnham Blaxcell in exchange for the rights to import 60,000 gallons of rum.

They used part of this rum to pay the wages of the hospital construction workers, and made a fortune in doing it. The consortium paid 10 shillings a gallon for the rum and then inflated the value to £2 17s 6d. Ironically, forty years later a part of this building would be converted to house the Sydney Mint for the production of official gold sovereigns and half sovereigns.

Colonial Banknotes

Coverage of Australia's early currency would be incomplete without a reference to the banknotes issued by private banks. The Bank of New South Wales, Australia's first public company, was founded in 1817. The scheme to create the bank was undertaken by Governor Lachlan Macquarie and a group of wealthy colonial businessmen.

The formation of the new bank reflected the confidence of the private businessmen in the future of the colony. It was to be the first of many such public investments. By 1850, the colony had a fully fledged currency system with over thirty banks providing the cornerstone for a rapidly increasing volume of commerce.

The issue of private banknotes from 1817 was one of the most important financial feats in Australia's history, paving the way for the economic growth and prosperity which followed. During the course of the next 90 years, a wide variety of banknotes were issued. Many banks did not survive the 'boom and bust' nature of the times while others, through mergers, name changes and takeovers, exist in the three major banking groups of today - ANZ, NAB and Westpac.

Many banks, with wealth invested from overseas, made the largest contribution to the fledgling economy, providing a large proportion of the capital needed for the pastoral expansion which occurred from the 1830's onwards.