Vales were Spanish paper money notes issued in the late eighteenth century and the Napoleonic era, the first paper money issued in Spain. During the last half of the eighteenth century, the gold and silver mines of Spanish America supplied the lion’s share of the world’s precious metals, and mints in Spain and the Indies struck most of the coins. Vast gold and silver resources were of little avail when war interrupted the flow of trade with the New World, compelling Spain to turn to the issuance of paper money.
War between England and Spain, the major colonial powers in the New World, broke out in 1779. Charles III, king of Spain, refused, perhaps out of fear, to raise taxes to fight the war. Also a history of defaults and bankruptcies damaged the ability of the Spanish government to float bond issues. A royal decree of 20 September 1780 authorized the issuance of 16,500 vales, each with a face value of 600 vellon pesos and bearing 4 percent interest. A syndicate of Dutch, French, and Spanish merchants had offered to extend funds to the Spanish government in return for interest-bearing notes that passed as legal-tender money.
Once a year the vales were returned to the treasury for payment of interest, inspection for counterfeited issues, and renewal for another year. A holder of a vale endorsed it before passing it on in exchange, and the holder of a counterfeited vale was entitled to reimbursement from the last endorser.
The vales were legal tender for payment of taxes and other obligations to the crown, promissory notes and other private debts, and bills of exchange. Creditors had to accept vales even when specie had been stipulated in the contract’s terms. Anyone refusing to accept vales as the equivalent of specie faced exile from Spain and exclusion from business dealings with Spain abroad. Vales had legal-tender status only for transactions equal to or exceeding 600 pesos, and recipients of salaries, wages, and pensions could refuse to accept them.
Other issues of vales followed on similar terms. The first issue drew a 10 percent commission to the syndicate supplying the funds, and subsequent issues drew a 6 percent commission.
The strains of the four-year war with England led to a modest overindulgence in paper money, and at times vales circulated at 15 to 20 percent discounts relative to specie. At the war’s end, bullion and specie again flowed into Spain from the New World, and vales circulated at par again. The retirement of a portion of the vale issues further boosted their value. In 1781 the Bank of Spain was chartered partly as a means for the orderly retirement of paper-money issues, an unusual mission for the type of bank usually known for issuing paper money.
In 1793 war erupted with revolutionary France, and the Spanish government again balked at raising taxes. At the opening of the war vales were circulating at par and suffered little depreciation despite the 300 percent increase in the supply of vales over the course of the 28-month war.
When Spain went to war with England again in 1796 the strains of wartime finance reached the breaking point. After resisting the issuance of additional vales for the first three years of war, the Spanish increased the supply of circulating vales by 50 percent in 1799. The inflation cooker now boiled over, and vales began to depreciate relative to specie. When a government office began to redeem small amounts of vales in hardship cases, a riot ensued after people formed a long line, and some bought places in line. By 1801 vales had depreciated by 75 percent.
Monetary chaos continued in Spain as the Napoleonic struggle spread to Spain, first with occupation by Napoleon and then by the Duke of Wellington. By the war’s end the value of the vales had fallen to 4 percent of their par value. After the war the government stopped printing vales and the inflation ceased.
Hamilton, Earl J. 1969. War and Prices in Spain: 1651–1800.
Kindleberger, Charles P. 1984. A Financial History of Western Europe.