Circulating Interest-Bearing Currency: An Arkansan Experiment, 1861-1863

During the Civil War the Arkansas legislature funded their expenditures primarily through interest-bearing warrants and war bonds. After these issues were made legal tender in November 1861, the discount attributed to them disappeared immediately and they began to circulate widely. In mid-1862 they were being accepted on par with specie even when Confederate notes - which were also made legal tender in November 1861 - were taken only at a substantial discount. This dominance of legal tender interest-bearing currency is consistent with legal restrictions theory. Confederate notes supplanted the Arkansas issues only after the legislature suspended interest payments in November 1862.