During the early Nineteenth Century, the principal means of exchange was gold and silver coinage or barter. However, the supply of coinage was limited the amount of precious metals available. As the economy of Kentucky expanded during the Nineteenth Century trade became largely based upon bank drafts sent to other banks for collection. However, this method was slow and eventually required the exchange of coinage to settle. To meet the expanding economy, state chartered banks began to issue banknotes which represented a portion of the bank’s reserves of gold and silver coinage. These banknotes quickly began accepted as “cash” by local merchants.
However, the oversight of state banks was limited during this period and many issued banknotes in excess of their reserves. In addition, given the rudimentary printing many of these banknotes were counterfeited. Acceptance of banknotes was usually limited to the immediate area and based upon the reputation of the bankers. It was not until after the Civil War that state banknotes became obsolete, when National Banknotes were printed and issued under the supervision of the Federal government.
Above and below are two examples of State Banknotes, the first is drawn on the Kentucky Insurance Company, issued in 1814, and the second is a specimen for the Northern Bank of Lexington, from the 1840s.
BANK DRAFTS
A bank draft is a payment order drawn upon an individual or a firm by a creditor for a specific sum at a specified date. The draft is sent to the bank named for payment from the account of one of its depositors. The receiving bank would either accept the draft (called acceptances) or return it under protest. Bank drafts were mainly used during the Nineteenth Century, until payment by checks became the accepted method of payment.
BILLS OF EXCHANGE
A Bill of Exchange is a form of draft, usually drawn in "multiple sets" (First, Second and Third Bill of Exchange). Each one was a duplicate drawn for the same amount, but was worded so that only the first bill to arrive was paid. These bills were normally used to draft upon a distant bank, sometimes internationally. Each copy was sent by a different route or method, thus insuring their presentment. Below are two examples, the first presented to the Lexington Branch of the Bank of Kentucky in 1855 and the second presented to the Fayette National Bank in 1871.
QUARTERMASTER WARRANT:
During the Civil War, the Quartermaster Corp was responsible for purchasing supplies for the Union Army in the field. To pay for these supplies, the Quartermaster issued Vouchers or Warrants, drawn on the Treasury Department in New York CIty or Washington, DC. Vouchers would often change hands frequently, as merchants endorsed the warrants to their wholesalers to settle accounts. Below is a Treasury Warrant issued during 1869, when Federal troops were still garrisoned in Lexington, to J. B. Tilford & Company.
PROMISSORY NOTES & DISCOUNTS:
A Promissory Note is a written promise to pay a certain sum of money on demand or at a specific time in the future. During the Nineteenth and early Twentieth Century, notes were often issued to a creditor, who in turn would discount (or cash) the note with their banks. Notes discounted were based on the credit standing of the maker and usually endorsed by the creditor. At maturity, the notes would be presented to the creditor’s bank for payment. By the 1920s, the discounting of notes became outdated. Below are two promissory notes, discounted at the Third National Bank in 1909 and the Phoenix and Third National Bank in 1915.
