A shinplaster was a common name for paper money of low denomination circulating widely in the frontier economies of the 19th century. These notes were in various places issued by banks, merchants, wealthy individuals and associations, either as banknotes, or circulating IOUs. They were often a variety of token intended to alleviate a shortage of small change in growing frontier regions. They were sometimes used in company shop economies or peonages in place of legal tender.
Shinplasters circulated in the United States from 1837 to 1863, during the period known as the “Free Banking Period.” According to the Oxford English Dictionary, the name comes from the quality of the paper, which was so cheap that with a bit of starch it could be used to make papier-mâché-like plasters to go under socks and warm shins.
During the “Free Banking Period”, only state-chartered banks existed. They could issue bank notes against specie (gold and silver coins) and the states heavily regulated their own reserve requirements, interest rates for loans and deposits, the necessary capital ratio etc. These banks had existed since 1781, in parallel with the Banks of the United States. The Michigan Act (1837) allowed the automatic chartering of banks that would fulfill its requirements without special consent of the state legislature. This legislation made creating unstable banks easier by lowering state supervision in states that adopted it. The real value of a bank bill was often lower than its face value, and the issuing bank’s financial strength generally determined the size of the discount. By 1797 there were 24 chartered banks in the U.S.; with the beginning of the Free Banking Era (1837) there were 712.
During the free banking era, the banks were short-lived compared to today’s commercial banks, with an average lifespan of five years. About half of the banks failed, and about a third of which went out of business because they could not redeem their notes.
In Canada, the term shinplaster was widely used for 25-cent paper monetary notes which circulated in the late 19th and early 20th centuries. The first design was printed on March 1, 1870 and the final design was first printed on July 2, 1923 The term likely arose from the previously issued 5 shilling note (1/4 Pound) which also bore the french term “Cinq Piastre” on the face.
In Australia, shinplasters or calabashes (as they were known in southern Queensland) were a feature of the Squatters’ vast pastoral enterprises, and often circulated in the towns of the bush alongside and in place of legal tender. These private IOUs circulated widely, at times making up the bulk of cash in circulation, especially in the 1840s and 50s.
In some places they formed the core of a company shop economy, circulating as private currencies. They were often of such low quality that they could not be hoarded, and shopkeepers off the property would not take them, as they would deteriorate into illegibility before they could be redeemed.
There are tales of unscrupulous shopkeepers and others baking or otherwise artificially aging their calabashes given as change to travelers so that they crumbled to uselessness before they could be redeemed.
As commerce and trade grew in centres such as Toowoomba, more and more calabashes were issued, and more and more merchants, squatters and others engaged in transactions were forced to give their ‘paper’ in change or as payment for goods and services