The paper money issued by the Massachusetts Bay Colony in 1690 was the first authorized by any government in the Western world. The Massachusetts Bay Colony financed a military expedition to Canada in 1690 by issuing bills of credit.
Over time, each of the thirteen colonies’ governments had emitted their own currency issues, although Great Britain opposed and tried to suppress them. Subsequent military campaigns and other expenses by other Colonies were funded with these bills. In all cases, they were a financial expedient adopted to cover a lack of funds by promising to “pay later.” (American Numismatic Society)
The French and Indian War represented the decisive turning point in British-colonial relations. The Treaty of Paris in 1763 ratified Britain’s undisputed control of the seas and shipping trade, as well as its sovereignty over much of the North American continent east of the Mississippi River, including French Canada.
The British Government had borrowed heavily from British and Dutch bankers to finance the war, and as a consequence the national debt almost doubled from £75 million in 1754 to £133 million in 1763. In order to address this onerous liability, British officials turned to larger import duties on enumerated goods like sugar and tobacco, along with a series of high excise (sales) taxes on goods such as salt, beer, and spirits.
This taxation strategy tended to burden consumers disproportionately. In addition, government bureaucracy expanded in order to collect the needed revenue. As the number of royal officials more than doubled, Parliament delegated new legal and administrative authority to them. Thus, even as British subjects lauded their pre-eminent position in the world, they chafed under the weight of increased debts and tightened government controls.
In 1764, Parliament passed the Currency Act, which banned the use of paper money as legal tender in all colonies. (This effectively took the prohibition of issuance of new bills of credit that had been imposed on New England colonies: Rhode Island, Massachusetts Bay, New Hampshire and Connecticut and extended that prohibition to all of the colonies.)
British merchants had asked for relief from the depreciated currency brought about by deficit financing in Virginia. It was argued that Parliament sought to control currency depreciation against silver and sterling and to ensure its value for payments of debt to British merchants. The Act represented an effort to take control of monetary policy from colonial assemblies.
The colonies faced a chronic shortage of hard money, which was being sent across the Atlantic to pay debts in England. To meet the shortage, they resorted to issuing their own paper money. British creditors, however, feared payment in such a depreciated currency. (JD Lewis)
To protect British merchants and creditors from depreciated colonial currency, this act regulated currency, abolishing the colonies’ paper currency in favor of a system based on the pound sterling.
Effect of the Currency Act
As a result, the colonies suffered a constant shortage of currency with which to conduct trade. There were no gold or silver mines and currency could only be obtained through trade as regulated by Great Britain.
- The Act banned colonial paper money as legal tender in private transactions.
- Colonial paper money was accepted for public debt payments such as provincial taxes.
- It prohibited the extension of paper bills beyond its date of redemption.
- The Currency Act did not place limits on the amount of paper money in circulation and on the period of redemption.
Opposition to the 1764 Currency Act started immediately. Colonial governments petitioned its repeal as the postwar economic slowdown was being felt in most colonies.
In 1770 Parliament revised the Act and allowed New York to issue bills as legal tender for all types of debt. In 1773 parliament allowed colonial legislatures to print bills to cover costs and to be used as legal tender.