The Numismatic Bibliomania Society



The E-Sylum: Volume 12, Number 28, July 12, 2009, Article 17


We had a whopper of an issue last week, and I didn't have time to comment on the California budget situation. Luckily. In the meantime other bloggers did a fine job of discussing it. Here are some excerpts from Scott's Coin Collector's Blog -Editor
While the study of coins can be a lesson in history, the study of paper currency can present a lesson in economics that may be relevant today. With the state of California printing and distributing IOUs to meet its financial obligations, I am reminded of how the colonies used similar arrangements to finance the fighting of the Revolutionary War.

The State of California is in serious economic trouble. Their fiscal year began on July 1 without a budget and a significant deficit between the government’s income and their legal obligations to provide services to the citizens of California. Governor Arnold Schwarzenegger declared a fiscal emergency and order the printing of IOUs to pay state debt obligations. Initially, 28,750 IOUs worth $53.3 million will be issued mainly for personal income tax refunds. The IOUs will carry a 3.75-percent interest rate redeemable by October 2 or earlier if a budget agreement is reached.

The financial term for the IOUs are “registered warrants.” For the citizens receiving these IOUs, most of California’s in-state and nationally-owned banks said that they will accept the IOUs as deposits for a limited time.

California last issued IOUs in 1992 during a similar budget crisis.

Records of the how many of the IOUs were redeemed do not seem to be publicly available and I did not find an auction record for the paper issued in 1992. However, it stands to reason that the paper IOUs will be highly collectible. Opportunists have been using online classified websites to offer to purchase these warrants as souvenirs (see an ad).

Although registered warrants are not legal tender, people may elect to trade and barter these IOUs for goods, services, and even legal tender money. We can only wonder if the paper will become more valuable as a collectibles as the Zimbabwe notes after their government devalued Zimbabwean Dollar because of hyperinflation. That ball is in the court of the California legislature. But they will make interesting collectibles.

Indeed. While the California warrants are unlikely to circulate as money, they are a direct descendant of Texas Treasury Warrants and many other municipal paper money issues of the past. Be sure to read the complete blog post for more history.


Has anyone seen one of the new California warrants? Can anyone send us an image? A warrant with a low face value would be ideal for collecting. As I've said many times before, the time to be collecting contemporary numismatic issues is NOW, while they are still fresh and plentiful. In a few months most will be gone from the face of the earth. Californians - ask around and see if you can get one. Better yet, acquire three or four low value ones and donate the extras to our major national numismatic museums for posterity. -Editor

To read the complete article, see: California Currency (

Another good article on the topic is by Ellen Brown of Huffington Post. -Editor
Hmm . . . Pay the bills with IOUs. Not a bad idea! That was, in fact, the original innovation that got the American colonists out of their financial straits back in the 18th century, when they lacked the silver and gold used in the Old World for conducting trade. This clever solution was first tried in the province of Massachusetts in 1691, when the governor needed money to fund a local war. The idea of a paper currency had been suggested in an anonymous British pamphlet in 1650, but the proposal was modeled on the receipts issued by London goldsmiths and silversmiths for the precious metals left in their vaults for safekeeping. The problem for the colonies was that they were short of silver and gold. The Massachusetts Assembly therefore proposed a different kind of paper money, a "bill of credit" representing the government's "bond" or IOU. The paper money of Massachusetts was backed only by the "full faith and credit" of the government.

Other colonies followed suit with their own issues of paper money. Some were considered government IOUs, redeemable later in "hard" currency (silver or gold). Others were issued as "legal tender" in themselves. They were "as good as gold" in trade, without bearing debt or an obligation to redeem the notes in some other form of money later. The new paper money not only made the colonies independent of the British bankers and their gold but actually allowed the colonists to finance their local government without taxing the people. Colonial assemblies discovered that provincial loan offices could generate a steady stream of revenue in the form of interest income by taking on the lending functions of banks.

The same solution was employed in other countries later. When Argentina's government workers were faced with massive layoffs, their unions persuaded six state governments to pay them instead with state bonds or IOUs in small denominations. The IOUs could then be used to pay for state services and taxes, and everyone in the local economy accepted them in trade.

To read the complete article, see: California Dreamin': How the State Can Beat Its Budget Woes (

Wayne Homren, Editor

NBS ( Web

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