Dollars or Dala?

5 Keneta coin from 1881

In 1880, the then Representative Walter Murray Gibson pushed for a new Currency Law which would create a new Hawaiian currency called the new Hawaiian dollar, the dala. However, to make things confusing, the Hawaiian dollar could be also be called the Hawaiian dollar in English or may be called the kālā (₭). The kālā (₭) was the old monetary system that Kamehameha III tried to implement in the 1830s through the ports and plantations but which did not take off due to the lack of reserves not to mention interest. 

An example of a  ₭5 bill from 1839

The new 1880 law stated that the new currency would on the same monetary basis as the US dollar and would be in silver and gold, as to not to upset the market which was already beginning to use the gold standard for external trade payments (i.e. debt payments) but silver for basic internal payments (i.e. buying clothes from a store). The law was also supported by the then Wilder Ministry.    


Most Native Hawaiians were in favor of it as it would finally be another visible symbol of nationhood. One must also remember that in 1880, there were very few visible symbols of Hawaiian nationhood. The brick and stone ‘Iolani Palace we know today wasn’t built yet. The King at that time was living in one of his private residences as Ho’iho’i ‘Ea Palace (where the monarch lived) was in termite eaten. The Kamehameha Statue was also not built yet either. There was no Hawaiian army or navy.  


In addition, King Kalākaua at that time was desperately trying to garner support the legitimacy of his reign as many Native Hawaiians on O’ahu were still pro-Queen Emma and believed Wilder, Greene, and others had bribed the legislature in order to gain Kalākaua’s election as sovereign. On the other islands, King Kalākaua had support because he was known as being a nationalist but also as someone who was overall the type of guy you would want to have an Heineken with.  So the new currency idea was also popular with Kalākaua as a symbol of his legitimacy both as a monarch and as a nationalist.


Business people, mainly from the American community, did not see much harm in having a new currency providing that it was on par with the United States dollar.  So there was very little opposition. 


In 1882, Wilder was replaced by Walter Murray Gibson as Minister of the Interior.  Gibson pushed through a Loan Act to help implement the new currency. The Loan Act allowed Gibson to issue one million dollars worth of bonds at 6% percent interest in order to purchase the silver and gold from the San Francisco Mint necessary to create the new currency. Most governments at that time would simply contract the mint itself and offer the bonds directly to that mint.  However, Gibson authorized his friend Claus Spreckels to buy the entire bond amount and to personally arrange the payment and production of the new money by the San Francisco Mint as well as the right to re-sell the bonds on the government’s behalf.  John Kapena, then Minister of Finance, was told by the United States Treasury department that the whole arrangement was highly unusual and “rather queer” (Kuykendall, The Hawaiian Kingdom, Vol 3, p89). What Spreckels did next was not highly unusual or queer but had shades of Bernard Madoff.          


Despite the fact that Loan Act of 1880 provided that the new currency would be on a bimetallic standard, Spreckels ordered one million Hawaiian dollars in silver coinage. Then for the coinage, he reduced the silver content of the coins to 83% of the silver content of US coins at that time. This had two effects economically and one effect to Spreckels. First, this forced the Hawaiian kingdom to be on a silver standard at a time when the world was transitioning to a gold standard and when loan and economic payments from the Hawaiian Kingdom to the United States was paid in gold. This would meant that with the new Hawaiian dollar, you had to buy gold in order to make a payment abroad in dollars instead of having to simply directly convert the ₭ into US$. This would make all future payments more expensive due to the fluctuating market price of silver to gold.  The second effect was that by reducing the silver content to 83%, it reduced the monetary value by 17%. The Hawaiian dollar was then in fact reduced in value by 17%, again adding additional costs and increasing inflation. The end result of all of this for Spreckels was that he gained the 6% interest on the one million dollar loan in addition to an extra $150,000 in profit by his devaluation of the silver as well as ensuring that in the future, the Hawaiian dollar would not be worth as much as the US dollar therefore making business more profitable for importers like himself.  The United States officials in San Francisco, businessmen in Honolulu, and even Finance Minister Kapena, warned both Spreckels and Gibson about the consequences of their actions, but were ignored. US officials believed that Gibson was more concerned about pleasing his friend than in sound economics. 


In late 1883, the new coins were introduced. This instantly created major issues of inflation as exporters (i.e. the sugar planters) had to buy gold on the open market to make their payments for tariffs and good abroad. William R. Castle, William O. Smith, and Sanford B. Dole sought an injunction at the Supreme Court against the new coins. What is interesting is that people  such as the Emmanites (pro-Queen Emma) supported this injunction as they not only feared the economic repercussion but just did not want to have to stare at Kalākaua’s profile everyday.  The Emmanite understanding was that the coins would have different profiles such as in the United States there were the profiles of George Washington, Abraham Lincoln, etc. But the new coins had the same profile–that of the king.  So they were a bit annoyed. In addition, Hawaiians wondered why were the new coins and money only in English when government issued bonds and coins previously in the 1830s were issued in both Hawaiian and in English.          


On January 7, 1884, in order to prevent the injunction, the Privy Council held an emergency meeting and declared that the new coins were of the “same fineness” as US coins. They then decided to authorize to buy (with the silver coins) gold in order to save the country’s exporters further costs. So Spreckels went back to San Francisco to order the printing of gold certificates (i.e. paper bills) which could be exchanged for payment in gold using the silver coins as reserves. Hence the origin of bills such as this:

The Republican money was on par with the US dollar and if one notices, it is also the similar shades of green and black that the US dollar was at the time. Again, it shows how the Republican government tried to show itself as being part of the United States already.


When the United States proclaimed that Hawai’i would be an incorporated territory of the United States in 1898, the Republican money was declared as voided. Unlike the coins of  King Kalākaua, they were not missed and many embraced seeing the US dollars over the Republican ones. 


As a side note, after 1898, the San Francisco mint could no longer mint all the needed money for the new American colonies of Hawai’i, Guam, American Samoa, and the Philippines.  So Bishop’s Bank was subcontracted to mint and produce US coins and dollars for the entire Pacific. The Philippines would eventually get permission to mint its own coins until the end of WWII, Bishop’s Bank printed US dollars.