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The Currency Act of 1764 was the second and most impactful of two laws passed by the British government during the reign of King George III that attempted to take total control of the monetary systems of all 13 colonies of British America. Passed by Parliament on September 1, 1764, the act extended the restrictions of the Currency Act of 1751 to all 13 of the American British colonies. It eased the earlier Currency Act's prohibition against printing of new paper bills, but it did prevent the colonies from repaying future debts with paper bills.
Parliament had always envisioned that its American colonies should use a monetary system similar, if not identical, to the British system of “hard currency” based on the pound sterling. Feeling that it would be too hard for it to regulate colonial paper money, Parliament chose to simply declare it worthless instead.
The colonies felt devastated by this and protested angrily against the act. Already suffering a deep trade deficit with Great Britain, colonial merchants feared the lack of their own hard capital would make the situation even more desperate.
The Currency Act exacerbated tensions between the colonies and Great Britain and is considered to be one of the many grievances that led to the American Revolution and the Declaration of Independence.
Economic Problems in the Colonies
Having expended almost all of their monetary resources buying expensive imported goods, the early colonies struggled to keep money in circulation. Lacking a form of exchange that did not suffer from depreciation, the colonists depended largely on three forms of currency:
- Money in the form of locally-produced commodities, like tobacco, used as a means of exchange.
- Paper money in the form of a bill of exchange or a banknote backed by the value of land owned by an individual.
- “Specie” or gold or silver money.
As international economic factors caused the availability of specie in the colonies to decrease, many colonists turned to bartering - trading goods or services between two or more parties without the use of money. When bartering proved too limited, the colonists turned to using commodities - mainly tobacco - as money. However, only poorer quality tobacco ended up being circulated among the colonists, with the higher quality leaves were exported for greater profit. In the face of growing colonial debts, the commodity system soon proved ineffective.
Massachusetts became the first colony to issue paper money in 1690, and by 1715, ten of the 13 colonies were issuing their own currency. But the colonies' money woes were far from over.
As the amount of gold and silver needed to back them began to dwindle, so did the actual value of the paper bills. By 1740, for example, a Rhode Island bill of exchange was worth less than 4% of its face value. Worse yet, this rate of the actual value of paper money varied from colony-to-colony. With the amount of printed money growing faster than the overall economy, hyperinflation quickly reduced the buying power of the colonial currency.
Forced to accept the depreciated colonial currency as a repayment of debts, British merchants lobbied Parliament to enact the Currency Acts of 1751 and 1764.
The Currency Act of 1751
The first Currency Act banned only the New England colonies from printing paper money and from opening new public banks. These colonies had issued paper money mainly to repay their debts to for British and French military protection during the French and Indian Wars. However, years of depreciation had caused the New England colonies' “bills of credit” to be worth far less than the silver-backed British pound. Being forced to accept the heavily depreciated New England bills of credit as payment of colonial debts was particularly harmful to British merchants.
While the Currency Act of 1751 allowed the New England colonies to continue using their existing bills to be used to pay public debts, like British taxes, it prohibited them from using the bills to pay private debts, such as those to merchants.
The Currency Act of 1764
The Currency Act of 1764 extended the restrictions of the Currency Act of 1751 to all 13 of the American British colonies. While it eased the earlier Act's prohibition against of the printing of new paper bills, it did forbid the colonies from using any future bills for payment of all public and private debts. As a result, the only way the colonies could repay their debts to Britain was with gold or silver. As their supplies of gold and silver rapidly dwindled, this policy created severe financial hardships for the colonies.
For the next nine years, English colonial agents in London, including no less than Benjamin Franklin, lobbied Parliament to repeal the Currency Act.
Point Made, England Backs Down
In 1770, the New York colony informed Parliament that difficulties caused by the Currency Act would prevent it from being able to pay for housing British troops as required by the also unpopular Quartering Act of 1765. One of the so-called “Intolerable Acts,” the Quartering Act forced the colonies to house British soldiers in barracks provided by the colonies.
Faced with that expensive possibility, Parliament authorized the New York colony to issues £120,000 in paper bills for the payment of public, but not private debts. In 1773, Parliament amended the Currency Act of 1764 to allow all of the colonies to issue paper money for the payment of public debts - especially those owed to the British Crown.
In the end, while the colonies had reclaimed at least a limited right to issue paper money, Parliament had reinforced its authority over its colonial governments.
Legacy of the Currency Acts
While both sides managed to temporarily move on from the Currency Acts, they contributed substantially to the growing tensions between the colonists and Britain.
When the First Continental Congress issued a Declaration of Rights in 1774, delegates included the Currency Act of 1764 as one of the seven British Acts labeled as “subversive of American rights.”
An Excerpt From the Currency Act of 1764
"WHEREAS great quantities of paper bills of credit have been created and issued in his Majesty's colonies or plantations in America, by virtue of acts, orders, resolutions, or votes of assembly, making and declaring such bills of credit to be legal tender in payment of money: and whereas such bills of credit have greatly depreciated in their value, by means whereof debts have been discharged with a much less value than was contracted for, to the great discouragement and prejudice of the trade and commerce of his Majesty's subjects, by occasioning confusion in dealings, and lessening credit in the said colonies or plantations: for remedy whereof, may it please your most excellent Majesty, that it may be enacted; and be it enacted by the King's most excellent majesty, by and with the advice and consent of the lords spiritual and temporal, and commons, in this present parliament assembled, and by the authority of the same, That from and after the first day of September, one thousand seven hundred and sixty four, no act, order, resolution, or vote of assembly, in any of his Majesty's colonies or plantations in America, shall be made, for creating or issuing any paper bills, or bills of credit of any kind or denomination whatsoever, declaring such paper bills, or bills of credit, to be legal tender in payment of any bargains, contracts, debts, dues, or demands whatsoever; and every clause or provision which shall hereafter be inserted in any act, order, resolution, or vote of assembly, contrary to this act, shall be null and void."