The United States Treasury and Its First "Bank"
United States
The "First" Bank of the United States.
War and economic hardship had typically driven the important developments in the financial development of the early colonies, first under British rule and then with the Continental Congress. However, creation of the Bank of the United States--largely a personal achievement of then Secretary of the Treasury Alexander Hamilton--was an important exception. Working during a period of peace and prosperity, Hamilton designed the bank as part of his overall plan for creating a source of credit for the new government. Not only would this new bank assist the Treasury with receipts and expenditures, it would also provide a national currency.
Before Hamilton's plan was adopted, it became the focal point of a constitutional controversy that lasted several years. The Constitution explicitly forbade state governments to coin money, emit bills of credit, or make anything but gold and silver coin legal tender in payment of debts. With respect to banking, however, the Constitution did not specify the powers of the Federal and state governments.
The Federalists, supporters of strong central government and broad interpretation of the Constitution, favored Hamilton's plan. Strict constructionists, such as James Madison, opposed the bank as an infringement on rights properly reserved to the states. Hamilton and the Federalists ultimately prevailed. President Washington rejected the opinions of his Attorney General and Secretary of State that the act was unconstitutional and signed the bill incorporating the bank in 1791.
The bank soon became a major financial institution. Hamilton gradually transferred the Treasury deposits to the bank. The bank began to issue notes that were receivable in payments to the Federal government. While this did not mean the notes were explicitly legal tender under law, it was essentially that in practice. This gave the Bank of the United States quite an advantage over other, private banks.
Most of the bank's transactions however, were commercial loans for financing domestic and foreign trade. Thus, although the bank had prominence and influence nationally, it was not what later came to be called a central bank with authority over or responsibility for the country's monetary system.
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Orignal From: The United States Treasury and Its First "Bank"
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