A History of Money and Banking in the United States: The Colonial Era to World War II by Murray N. Rothbard Page A

America, was not only the first fractional reserve commercial bank in the U.S.; it was to be a privately owned central bank, modeled after the Bank of England. The money system was to be grounded upon specie, but with a controlled monetary inflation pyramiding an expansion of money and credit upon a reserve of specie.
    The Bank of North America, which quickly received a federal charter and opened its doors at the beginning of 1782, received the privilege from the government of its notes being receivable in all duties and taxes to all governments, at par with specie. In addition, no other banks were to be permitted to operate in the country. In return for its monopoly license to issue paper 18As Morris candidly put it, this windfall to the public debt speculators at the expense of the taxpayers would cause wealth to flow “into those hands which could render it most productive.” Ferguson, Power of the Purse , p. 124.

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    Before the Twentieth Century
    money, the bank would graciously lend most of its newly created money to the federal government to purchase public debt and be reimbursed by the hapless taxpayer. The Bank of North America was made the depository for all congressional funds.
    The first central bank in America rapidly loaned $1.2 million to the Congress, headed also by Robert Morris.19
    Despite Robert Morris’s power and influence, and the monopoly privileges conferred upon his bank, it was perceived in the market that the bank’s notes were being inflated compared with specie. Despite the nominal redeemability of the Bank of North America’s notes in specie, the market’s lack of confidence in the inflated notes led to their depreciation outside its home base in Philadelphia. The bank even tried to shore up the value of the notes by hiring people to urge redeemers of its notes not to ruin everything by insisting upon specie—a move scarcely calculated to improve ultimate confidence in the bank.
    After a year of operation, however, Morris, his political power slipping after the end of the war, moved quickly to end his bank’s role as a central bank and to shift it to the status of a private commercial bank chartered by the state of Pennsylvania. By the end of 1783, all of the federal government’s stock in the Bank of North America, which had the previous year amounted to five-eighths of its capital, had been sold by Morris into private hands, and all U.S. government debt to the bank 19When Morris failed to raise the legally required specie capital to launch the Bank of North America, Morris, in an act tantamount to embezzlement, simply appropriated specie loaned to the U.S. by France and invested it for the government in his own bank. In this way, the bulk of specie capital for his bank was appropriated by Morris out of government funds. A multiple of these funds was then borrowed back from Morris’s bank by Morris as government financier for the pecuniary benefit of Morris as banker; and finally, Morris channeled most of the money into war contracts for his friends and business associates. Murray N.
    Rothbard, Conceived in Liberty , vol. 4, The Revolutionary War, 1775–1784
    (New Rochelle, N.Y.: Arlington House, 1979), p. 392.

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    A History of Money and Banking in the United States: The Colonial Era to World War II
    had been repaid. The first experiment with a central bank in the United States had ended.20
    At the end of the Revolutionary War, the contraction of the swollen mass of paper money, combined with the resumption of imports from Great Britain, combined to cut prices by more than half in a few years. Vain attempts by seven state governments, in the mid-1780s, to cure the “shortage of money” and reinflate prices were a complete failure. Part of the reason for the state paper issues was a frantic attempt to pay the wartime public debt, state and pro rata federal, without resorting to crippling burdens of taxation. The increased paper