The First Fleet entering Port Jackson by E. Le Bihan State Library of New South WalesOn January 18 1788, Captain Arthur Phillip and the ships of the First Fleet landed on the shores of New South Wales.They brought a supply of food, agricultural tools and livestock. Everything the British government thought they’d need to establish a colony on the other side of the world.But Phillip wasn’t supplied with one thing: money.The British government had chosen not to give Phillip coins or banknotes (i.e. currency). The only coins and banknotes that existed were those brought out by the officers, sailors and some convicts.As to why Phillip was not supplied with currency we cannot be sure. But as my new research describes, shortly after landing, Phillip had need to spend — and spend he did. The power to issue debtAmongst his various instructions from the British Government, Phillip was given power to issue debt against the British Treasury to purchase goods during his voyage to Australia. This debt took the form of an IOU.With his signature, Phillip transformed a piece of parchment into a promise that the British Treasury would hand over currency when the IOU was eventually redeemed.Faced with an immediate need to build shelters and unwilling to redirect the labour of the convicts who were otherwise helping establish the colony, Phillip paid several sailors of the First Fleet to come ashore and build shelters for the colony. He paid them by issuing an IOU against the British Treasury. Phillip created money out of thin air. Governor Arthur Phillip used promissory notes for payment. State Library of New South Wales The sailors accepted Phillip’s IOU because they understood he was an agent of the government. And in turn, they trusted that the British Treasury would hand over currency when the IOU was redeemed.In a neat coincidence, the same year (1787) that Phillip departed for NSW, Britain introduced a law that required parliament to approve any government spending before it took place. The Australian government’s spending today likewise requires parliamentary approval.But Phillip spent on behalf of the British government without parliamentary approval.Spending without permissionIn 1787, Britain’s parliament approved the spending to cover Phillip’s wage as governor, but there was no approval for Phillip’s IOUs. Instead, Britain’s parliament retrospectively approved his spending years later.But what is most interesting about my research is that I find that Phillip’s IOUs and those of later governors of NSW were not always approved by parliament. That is, the governors spent by issuing promises to pay and the colonists accepted them — despite there being no legal grounds for the spending. The governors’ capacity to spend hinged on the trustworthiness of their IOUs. They did not need to tax or borrow before being able to spend.How the early settlers made paymentsFree settlers and convicts also issued their own paper-based IOUs — known as promissory notes — to purchase goods from one another. But they were not as valuable as Phillip’s IOUs because they did not carry the government’s promise to pay currency. Promissory notes only circulated among people who trusted one another.The government’s store — the Commissariat — provided supplies to the colonists to help them establish local production of food. As the colony began growing its own food, colonists could sell their surplus produce to the Commissariat. In return the colonists received a store receipt. The store receipt could subsequently be returned to the Commissariat to purchase additional supplies. Because the Commissariat only accepted store receipts or currency in payment, store receipts became an acceptable means to settle outstanding IOUs (promissory notes) between colonists. Store receipts became a substitute for currency. A holey dollar minted in New South Wales in 1813 from a Spanish silver dollar. State Library of New South Wales The first supply of currency from the British government didn’t arrive in NSW until 18 November 1792 — 1,766 days after Phillip landed. Phillip was supplied with £1,001 worth of silver coins and used them instead of his IOUs.But as ships began trading with the colony, this currency subsequently left NSW as it was used by the colonists to purchase goods from visiting merchants. This was a problem because currency was needed to settle private promissory notes. A natural monetary experimentIt was not until the 1820s that a stable supply of currency was secured in NSW and the governors ceased issuing IOUs.Owing to the distance between NSW and London — letters took six months each way — there was no way for Phillip to ask for parliamentary approval before he had need to spend. Yet despite this, he spent and his IOUs were accepted. Studying colonial NSW presents a unique natural experiment to explore the development of a monetary system and provides insight into what money is.While not everyone agrees on how Australia’s monetary system emerged, academics agree the emphasis given to rum as a form of barter has been overstated.Despite being physically removed from the public finance institutions of Britain, without a mint to produce coins locally and without a population to tax or borrow from, Phillip spent and shaped society.Matthew Crocker completed his PhD on the history of money in Australia since 1788 with the support of an Australian Government Research Training Program scholarship. He is a member of the Australian Labor Party, but does not hold any official role or title.