The Currency Act of 1764, along with its earlier iteration, the Currency Act of 1751 (which applied only to New England), in essence, prohibited the colonies from issuing their own paper currency as “legal tender.”
This created a problem for colonists because there were no gold or silver mines in the New World and approved currency (silver and gold coins) could only come from proper trade as regulated by Mother Britain. And since the Crown restricted trade with Dutch, French and Spanish colonies in the West Indies, that meant the only means by which the colonies could obtain approved currency was with Great Britain, herself.
According to this article, “Triangular Trade, coupled with the policy of Mercantilism, provided a ‘favorable balance of trade’ for Great Britain but an ‘imbalance of trade’ in the colonies resulting in a massive trade deficit. The trade deficit was a direct result of the British policy of Mercantilism and its use of the Triangular trade routes. The result of this caused the colonies to suffer a chronic shortage of funds. The Currency Act threatened to destabilize the entire colonial economy of New England, the Middle Colonies and the Southern colonies.”
In other words, the Currency Act plunged the American colonies into a great, big ol’ depression.
In fact, good ol’ Benjamin Franklin, who was living in London at the time lobbied for the Currency Act to be repealed. (He wasn’t the only one, of course, but you all know who he is I assume.)
Franklin knew that choking the barely burgeoning economies of the young colonies would not only prove detrimental to the growth and future success of said colonies, but would ultimately backfire through inevitable rebellions. And that’s exactly what happened. The Currency Act, even more than the Sugar Act, started to really turn up the heat in the years ahead of the American Revolution.
In 1763, when Franklin was asked by the Bank of England why the American colonies were seeing such prosperity, he had responded:
“That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one.”
The Currency Act of 1764 made the Colonial Script that Franklin had referred to in the earlier statement illegal.
After the Currency Act went into effect, Franklin said:
“In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.”
One might think that after the American Revolution, this new nation would be able to avoid the types of money troubles the colonists had under the Currency Act, but it seems we never learn.
After the Revolutionary War, the fledgling United States government was up to its eyeballs in debt. That is when talk began about establishing the First Bank of the United States, which was a predecessor to the modern day Federal Reserve.
While Alexander Hamilton was the First Bank of the United States’ greatest champion, Thomas Jefferson and James Madison were deeply opposed to such an institution. They believed that a central bank was unconstitutional, and that it would create an unfavorable balance relating to currency that, in this case, favored merchants and investors, at the expense of ordinary colonists, just as the Currency Act had created a detrimental imbalance in trade between the colonies and Great Britain.
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