Currency Act (Paper Bills of Credit Act)

The Currency Act, or the Paper Bills of Credit Act, was legislation passed by the British Parliament in 1764 to regulate economic dealings in the then-British-ruled North American colonies. Practically since their inception, the American colonies had struggled to ensure that they had sufficient legal currency in circulation. Heavy import expenses and rising taxes meant that increasing levels of this already-scarce currency was being sent back to Europe.

Colonists had invented many plans to supplement official currency with domestically produced currencies, including “bills of credit” issued by colonial governments. In the Currency Act, Parliament declared this activity to be illegal and restricted colonists to official British currency only. This declaration was not only impractical but also seen as an insult to many colonists. Parliament would follow up the Currency Act with numerous other laws that restricted and managed colonial affairs, which led to a rising tide of colonial protest and the American Revolution.

Brief History

In the 1700s, prior to the American Revolution (1775–1783), Great Britain controlled thirteen colonies in North America. In general, the American colonists saw themselves as British citizens, with mostly equivalent rights and responsibilities. This colonial system operated more or less smoothly until the middle of the century. By that time, complications began to arise which caused disagreement, confusion, and finally resentment between many American colonists and their leaders in Great Britain.

Some of these complications were based on the great geographical distance between the lands, separated as they were by the Atlantic Ocean. This distance made communication extremely slow and political administration awkward. Other complications were rooted in the growing social and cultural differences between the colonists and their mother country. As American colonists learned to survive and thrive in their new home, they developed new skills and confidence in themselves and their abilities. However, many British leaders were far more focused on domestic interests; they paid little attention and afforded little respect to their colonial cousins.

The turning point of the colonial and British relationship, can be traced to the French and Indian War. The war was the name of the North American theater of a much larger war, the Seven Years’ War (1756–1763), waged between the great powers of Europe. In the middle of the eighteenth century, both Britain and France were major colonial powers. Their imperial aspirations often overlapped, leading to conflict.

In the French and Indian War, the two powers collided to see which would become the world’s superpower. Some of the heaviest and bloodiest fighting took place in North America, where both Britain and France had established colonies. They had also created numerous relationships with Native American groups, often leading to military alliances. Through the course of the long conflict, professional soldiers from Britain, heavily bolstered by troops raised in the colonies, eventually broke French power and dislodged the French from most of their possessions on the continent.

The Treaty of Paris (1763) marked the end of the war. Through its clauses, Britain secured enormous amounts of land in North America from France as well as Spain. On the surface, the war seemed to have been a major success for Great Britain, but in actuality it planted the seeds of a new conflict that would begin the downfall of British imperial hegemony. Britain had invested huge amounts of money in the war, both in North America and Europe, and the British government had gone deeply into debt.

For most British legislators, the solution was clear. Because much of the expense was incurred in defending the American colonies, the colonies should be responsible for repaying it. The British Parliament began passing numerous acts to raise taxes in the colonies. Many colonists, even those who agreed with the basic idea of sharing the economic burden of the war, resented the new taxes because they were passed without any input by colonial leaders—in essence, it was “taxation without representation.” This became one of the rallying cries of colonists increasingly dissatisfied with life under British oversight.

At the same time, British leaders took other steps to manage affairs in North America, notably in passing laws that would limit colonial expansion westward beyond the then-established British-controlled land boundaries. This action was meant to avoid further agitating the still-powerful Native American groups who opposed Britain and risking another conflict. However, it insulted thousands of colonists, many of whom had fought in the recent war and felt they deserved the freedom to move as they pleased.

Overview

The end of the French and Indian War in 1763 led quickly to British Parliament’s initiative to raise taxes in the colonies. These efforts began in 1764 with the Sugar Act, the first of many acts that would increase duties on all imported goods that did not come from Britain. The acts were meant to promote British trade to the colonies by pushing for a British monopoly on imported items. Britain wanted the colonists to be dependent on their mother country for any goods they could not produce themselves. In addition, later acts would apply additional fees to these British-imported goods.

These policies began planting discontent among many colonists and stirring patriotic sentiments that would eventually lead to war with Britain. At the same time, they also highlighted another aspect of the growing America-Britain divide—the problem of currency. Currency had been a concern in the colonies since their establishment. British and colonial leaders initially envisioned currency that was produced and sanctioned by Britain, such as official coinage bearing the visage of the British king. That seemingly simple idea quickly proved impractical, however.

Currency was difficult to ship to the colonies, especially large quantities of small denominations such as copper halfpennies and pennies that people relied upon for their everyday transactions. Currency already in the colonies was often hoarded or worn down by constant use. Higher-value coins were issued in silver and gold, but many people in Britain felt these were too precious to send overseas. At the same time, many international traders, including those from Britain, insisted on being paid in these precious metals, which they would then take back to their home countries. The result was that little currency was reaching the colonies, and what was already there was disappearing from circulation quickly.

Colonists devised many strategies to work around this problem. Many deemphasized currency altogether and conducted most of their everyday business with barter and other non-currency deals, such as trading crops for tools, or paying workers with tobacco. Other colonists attempted to mint their own coins, either as counterfeits or as open imitations of existing British designs.

Many colonies sought their own workarounds, such as printing their own paper currency, often called “bills of credit.” By the 1700s, such paper bills were common in many types and denominations. These proved cheap to produce and easy to distribute and transport, but they had major downsides as well. Currency systems were not standardized between the colonies, meaning that one colony’s money might be worth different amounts, or nothing at all, in a neighboring colony, playing havoc on intercolonial trade. In addition, the paper money was not based on precious metals or other clearly monitored limited resources, meaning it was prone to sudden shifts in value, or total devaluation.

British leaders detected this activity and realized it was causing many problems in the colonial economies as well as weakening British control over the colonies. On April 19, 1764, leaders in Parliament created the Currency Act, also known as the Paper Bills of Credit Act. It would go into effect in the colonies on September 1 of that year. In this act, Parliament essentially declared that the British government was the sole controller of colonial currency. It extended an earlier ruling, the Currency Act of 1751, which disallowed the New England colonies from producing their own currency so the prohibition would apply to all the colonies.

The 1764 act banned colonists or colonies from issuing their own forms of money. It also restated Britain’s traditional reliance on the prevailing pound sterling system, but made no offer to create a colonial currency based on that system nor to ensure sufficient deliveries of legal British tender. In the act’s third clause, it stated that any colonial governor who disobeys the act, or allows other to disobey it, will be charged a fine of one thousand pounds and will be permanently disbarred from government office.

The Currency Act, along with the Sugar Act of the same year, led to widespread dissatisfaction among American colonists and sparked the protests that would grow during the subsequent decade. Some of the sharpest criticism of Parliamentary actions came from leaders in Massachusetts who advocated for colony-wide protests. Many colonies responded by starting non-importation policies, discouraging imported items from Britain, both to protest British taxes and to promote colonial self-efficacy.

Despite these measures, British Parliament continued its quest to tax and manage the American colonies, leading to the Quartering Act and Stamp Act of 1765, the Declaratory Act of 1766, the Townshend Acts of 1767, and so on. Each new policy only intensifying colonial resentment and protests. Ultimately, this rising tension led to the American Revolution and the eventual creation of the United States.

Bibliography

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