The Currency Act was legislation that placed restrictions on the issuing of paper money in the American colonies. It was passed by the British Parliament in April 1764 after lobbying from British merchants, who were concerned about being paid in paper money that quickly lost its value. Money was already scarce in the colonies so the Currency Act only worsened this problem. Because of this, the legislation was met with significant criticism and opposition in America.
Money before the Revolution
Currency was scarce in the American colonies before and during the revolution. As a consequence, each colony took its own steps to obtain or produce some form of working currency. This created complicated, inequal and often confusing systems where a number of different coins and printed money might be in use at any time.
The form of currency most trusted and in demand were coins minted with gold or silver, also known as specie. Because they were minted from precious metals, these coins had value that was both intrinsic and stable.
Coins from England, France, Spain, Holland and other European states were all accepted as legal tender in the American colonies. Spanish silver dollars, which were minted in significant quantities, were the most common of these. These dollars were often cut into eight pieces to make smaller denominations, hence the term ‘pieces of eight’.
Though British coinage was in shorter supply, British pounds, shillings and pence remained the accepted units of currency, particularly for foreign trade. Non-British coins were accepted but their values were calculated using agreed rates of exchange.
Colonial scrip
As the colonial economy expanded in the late 1600s, the demand for reliable currency also grew. Colonial governments alleviated this by printing their own money in order to pay debts. In 1690, Massachusetts became the first modern Western nation to issue banknotes as a form of currency.
This early American paper currency was variably known as bills of credit or colonial scrip. Issued either as pounds or dollars, this paper money was not backed by gold or silver but could be used to pay public debts and taxes. They could also not be used outside the borders of the issuing colony. Consequently, bills of credit had limited usefulness and many refused to accept them for private transactions.
Problems emerged when colonial governments continued to alleviate their debts by printing more bills of credit. Because these bills could not be exchanged for gold, used in private commerce or otherwise cashed in, many colonists found themselves holding large amounts of them. Every new issue then depreciated their value.
British policy
The confused situation was facilitated by British policy, which actively kept the American colonies in need of gold and silver money. The British government did not mint enough coins to provide the American colonies with its own currency. Further, London actively discouraged the colonies from minting their own currency.
The shortage of specie in America was no accident. Indeed, it was the result of deliberate British policy. The underlying economic ideology in Britain was mercantilism, a belief that colonies existed to benefit and supply the mother country with raw materials. Mercantilists argued that the amount of gold and silver held in the nation’s treasury was the most crucial determinant of its wealth. Britain, therefore, sought to limit the amount of specie it released to or shared with the colonies.
This mercantilism underpinned legislation relating to the American colonies. Trade acts required that all colonial debts to England be paid using gold or silver, rather than other means such as promissory notes or payments in kind. The flow of gold and silver between the colonies and Britain was closely regulated – for the most part, it was a steady stream one way, from America to Britain, but only a trickle the other.
The Currency Act
The first Currency Act was, in fact, passed by King George II in 1751. This legislation, a forerunner to the 1764 act, prohibited the New England colonies (Massachusetts, Connecticut, New Hampshire and Rhode Island) from printing and issuing bills of credit above specified amounts.
The second Currency Act, passed in April 1764, applied to all 13 colonies, though its terms were slightly different. Colonial governments were not prohibited from printing bills of credit – but the 1764 act ruled that they were not legal tender and could not be used for the payment of public or private debts.
As with other mercantilist legislation, the Currency Act was passed to satisfy private commercial interests. With the shortage of specie in the colonies, British merchants and traders were frequently forced to accept colonial bills of credit as payment. Each new issue caused inflation and lowered the value, however, leaving them out of pocket.
Colonial responses
The Currency Act prompted significant opposition in the colonies, who saw it as kowtowing to British mercantile interests. Their anger was compounded when Parliament passed the Sugar Act a fortnight later, imposing customs duties on a number of items and requiring these duties to be paid in British currency.
In general, there was broader colonial opposition to the Currency Act than George Grenville‘s new customs duties. Whereas the Sugar Act chiefly disrupted importers and rum distillers, Parliament’s restrictions on currency impacted a greater number of stakeholders in the colonial economy.
Colonial representatives lobbied intensely for the repeal of the Currency Act and the introduction of a more liberal monetary policy. New York merchant John Watts declared that “we have no resources upon an emergency but in paper money, and if that is duly sunk, we do not see the great mischief of it to the public”. Benjamin Franklin, then in London, openly criticised the legislation and presented a petition against it on behalf of the Pennsylvanian government.
Franklin, in fact, had long been aware of the problems British monetary policy was causing in colonies. Some 35 years before the second Currency Act, Franklin penned an essay titled “A Modest Inquiry into the Nature and Necessity of a Paper Currency” that called for a more generous policy:
“It is the highest interest of a trading country in general to make money plentiful… It cannot hurt the interest of Great Britain… and it will greatly advance the interest of the proprietor. It will be an advantage to every industrious tradesman because his business will be carried on more freely and trade will be universally enlivened by it. And as more business in all manufactures will be done… the country in general will grow so much the richer.”
Consequences
The American colonies were already sliding into a post-war recession in 1764. The passing of the Currency Act only made it harder to conduct business, manage trade or raise funds.
Some sectors of the colonial economy more than others. Those whose business relied on bills of credit were affected most adversely, colonial planters and farmers among the worst hit. In the towns and cities, many merchants refused to accept paper currency, making purchasing difficult. In 1767, a Philadelphia merchant named Daniel Roberdeau said that “the scarcity of a medium of circulating cash was the greatest ever known”.
Despite numerous overtures, Parliament refused to repeal the Currency Act and it remained in place until after the American Revolution. The Parliament did amend the legislation in 1773, allowing public debts to the crown to be paid in colonial paper money. As a consequence, currency remained in short supply in the American colonies throughout this period.
“The Currency Act effectively outlawed most colonial paper money… British merchants had long complained that Americans were paying their debts in inflated local currencies. [But] Americans could accumulate little sterling because they imported more than they exported; colonists complained that the act deprived them of a useful medium of exchange [and was] imposed on an economy already in the midst of depression.”
Mary Beth Norton, historian
1. Prior to the revolution, the American colonies were chronically short of specie or hard currency, forcing them to rely on foreign coins and printed money called scrip or bills of credit.
2. This was a product of British mercantilist policy, which was designed to ensure the steady flow of specie (gold and silver coins) from the colonies back to the mother country.
3. Colonial governments issued this printed money but often did so excessively, leading to devaluation and inflation. This created problems for British merchants being paid with this money.
4. As a result of their lobbying, Parliament introduced the Currency Act, placing restrictions on how much printed money colonial governments could issue and how it could be used.
5. The Currency Act was widely unpopular because it worsened an existing problem, making it difficult to transact business and obtain credit in the colonies.
Citation information
Title: ‘The Currency Act’
Authors: Jennifer Llewellyn, Steve Thompson
Publisher: Alpha History
URL: https://alphahistory.com/americanrevolution/currency-act/
Date published: July 15, 2019
Date updated: November 21, 2023
Date accessed: April 24, 2024
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