Overview
Colonial America suffered from a lack of hard money due to the Mercantile System. This economic system required the colonies to export relatively cheap raw materials to Great Britain and import relatively expensive manufactured goods.
The system was good for merchants in the Mother Country. However, it harmed colonists because it led to more hard money — gold and silver coins, also known as “specie” — leaving the colonies through business transactions than was returning.
Many Americans did not have access to hard money, so they often used tobacco, lumber, grains, or other commodities to pay their debts or to trade for goods and products they needed.
Some colonies relieved their currency problems by issuing paper money backed by anticipated tax collections or land mortgages. Paper money was popular among the working class and farmers because it put more money into circulation, stimulating the economy. However, paper money was unpopular with British merchants because its value was volatile, and it often fluctuated downward. Because of this, British merchants petitioned Parliament, asking it to ban the use of colonial paper money for settling debts.
Parliament first dealt with these issues in New England by enacting the Currency Act of 1751, which banned public banks and “bills of credit” — paper money — that could be used as currency. Following the French and Indian War, Parliament extended the provisions of the Currency Act to all 13 colonies on April 19, 1764, and effectively took control of currency in America.
The act went into effect on September 1, 1764. It prohibited the colonies from printing any new paper money and stated that the paper money already in circulation was to be withdrawn from circulation over time.
The Currency Act created problems for the colonial economy, which was already suffering from a shortage of hard money. Along with the Sugar Act, it was one of the first grievances Americans had with Britain, fueling the American Revolution and eventually leading to the American Revolutionary War.
Essential Facts
- The Currency Act was enacted in 1751 to restrict banking and the use of paper money in New England. It was expanded to all 13 colonies in 1764.
- It prohibited colonies from issuing paper money as legal tender.
- The 1764 extension, entitled “An Act to prevent Paper Bills of Credit,” required colonial governments to recall existing paper currency.
- Colonial currency was often worth less than British currency, so when colonists used paper money to pay British merchants, it usually resulted in them paying less than they owed.
- The Currency Act sought to prevent this by stopping colonies from printing their own money.
- Colonial debt was rising quickly, leading to a shortage of gold and silver coins (hard currency).
- Colonists relied on paper money for transactions because hard currency was scarce.
- The law was passed around the same time as new taxes, such as the Sugar Act (1764) and the Stamp Act (1765), which increased the need for hard currency.
- Although the Currency Act was not the main issue in colonial resistance, it added to the overall dissatisfaction with British control.
Key Dates
- The Currency Act of 1764 was enacted on April 19, 1764.
- Enforcement of the Currency Act of 1764 started on September 1, 1764.
Significance
The Currency Act of 1764 is important to American History because it was one of the grievances that contributed to the American Revolution. The act contributed to economic difficulties and unrest, helping unite the colonies in opposition to British economic policies.
History
Purpose
The Currency Act was enacted during the administration of Prime Minister George Grenville, who sought to overhaul the economic relationship between the American Colonies and Great Britain through a series of fiscal reforms, including the Currency Act and enforcement of the Navigation Acts. The purpose of the reforms was to help fund a new standing British army in North America and pay off debts incurred by the French and Indian War.
- The bill is also known as the Continental Currency Act.
- It was passed by Parliament on April 19, 1764.
- The act aimed to control inflation among the American colonies.
- The inflation was caused by the French and Indian War (1754–1763).
- The act sought to reduce the large debts incurred by the colonies, especially in Virginia.
- It was part of efforts to stabilize the British Empire’s finances after the war.
George Grenville (1712–1770) — Grenville was the Prime Minister of Great Britain and was responsible for implementing policies that caused the American Revolution. His policies are known as the Grenville Acts and include the Currency Act, Sugar Act, and the Stamp Act.
Mercantilism — An economic theory used by Britain that allowed the American Colonies to flourish, but also led to the policies that contributed to the unrest of the American Revolution.
Salutary Neglect — An unwritten policy of the British Government that encouraged American officials to neglect the enforcement of laws in Colonial America. The policy allowed both American and British merchants to flourish. However, when the government reversed the policy, it helped cause the American Revolution.
Provisions
- The act was written mainly due to the influence of British merchants.
- British merchants wanted to prevent Americans from paying debts with paper money that fluctuated in value.
- The act prohibited colonial governments from issuing paper money as legal tender.
- It required that all existing currency in circulation be recalled by colonial governments.
- Colonial governments had to set specific recall dates to withdraw the currency.
Scarcity of Hard Money
- Scarcity of currency was a constant issue in the colonies.
- British-made coins were so rare in the colonies that many people used Spanish milled dollars or paper currency.
- The trade imbalance with England due to the Navigation Acts made it difficult for colonial merchants to obtain hard currency.
Spanish Milled Dollars — Silver coins minted in Spain that were valued based on their weight. The edges had a pattern to them that made it easy to see if the edges had been worn down or altered. They were also referred to as “Pieces of Eight,” because they could be cut into eight equal pieces, or “bits,” to make change.
Paper Money
- The use of paper currency often caused inflation and hardship for creditors due to its fluctuating value.
- Before the Currency Act, Parliament had passed several laws that banned the use of paper money in the colonies.
- These prohibitions did not face much opposition until later.
- The Currency Act of 1751 was the most significant law, but it only applied to New England.
Currency Act (1751) — Enacted by Parliament during the reign of King George II, it restricted the use of paper money and public banks, which were popular in New England. One of these banks was called the “Land Bank.” One of the founders was Samuel Adams Sr., the father of Samuel Adams, the Founding Father.
Samuel Adams Sr. and the Land Bank
- The Land Bank was established in 1739 to help people obtain paper money by mortgaging their property.
- It was popular with small farmers who used the money to buy goods and products from Boston merchants.
- In 1741, some members of the Massachusetts Governor’s Council, who opposed the Land Bank, petitioned Parliament to ban the Land Bank and its currency.
- These members of the Council were part of the aristocratic “Court Party.”
- Parliament responded with the Currency Act (1751), which required Adams and his partners to repay their clients in hard money.
- This created severe financial problems for Adams Sr., which his son inherited.
- The situation led Adams Jr. to distrust the ruling class and Parliament, pushing him toward James Otis Jr. and the so-called “Popular Party.”
James Otis (1725–1783) — Otis was a successful lawyer from Boston, Massachusetts, who played a significant role in shaping the ideology of the American Revolution. He is most famous for his opposition to Writs of Assistance, the Sugar Act, and the Townshend Acts.
Samuel Adams (1722–1803) — Adams was a Founding Father, member of the Continental Congress, Signer of the Declaration of Independence, and a leading proponent of colonial independence from Great Britain. After the Revolution, Adams served four terms as Governor of Massachusetts.
Impact
- The enforcement of the Currency Act and Navigation Acts led to severe shortages of hard money in the colonies.
- Enforcement of the Sugar Act (1764) reduced the influx of hard money entering the colonies through trade with the West Indies.
- Colonists did not hold public protests against the Currency Act, but their frustrations came to the forefront during the Stamp Act Crisis (1765–1766).
Sugar Act (1764) — Enacted by Parliament to raise revenue for Britain to pay part of the cost of a standing army in North America. It is most famous for starting the controversy over “Taxation Without Representation” — a direct cause of the American Revolution. The Sugar Act targeted shipping and business transactions.
Stamp Act (1765) — It required printers and publishers to buy special stamped paper for legal documents and many printed materials in the colonies, adding to the frustrations Americans felt over new policies that tightened imperial control.
Stamp Act Crisis (1765–1766) — The colonial reaction to the Stamp Act. Americans responded with written protests, riots, and the Stamp Act Congress. They also passed non-importation agreements, refusing to import finished goods from British merchants. The American response to the Stamp Act led British merchants to push Parliament to repeal the Act in 1766. However, Parliament also enacted the Declaratory Act, which declared its authority over the American Colonies in all areas, including taxation.
Colonial Reaction
- Colonists viewed the Currency Act as reducing the colonial economy to a barter system.
- Many believed it was part of a larger effort by factions within Parliament to “enslave” the colonies.
AP US History Alignment
The Currency Act is part of the following units, topics, and chapters in the AP US History curriculum:
Unit 3: 1754–1800
- 3.3 — Taxation Without Representation
- 3.4 — Philosophical Foundations of the American Revolution
- 3.5 — The American Revolution
- 3.6 — The Influence of Revolutionary Ideals
