The Currency Act of 1764 removed the authority of colonial governments in the middle and southern American colonies to issue legal-tender paper money for either private or public debts. The act passed Parliament following the French and Indian War (1754–1763) when colonial governments, particularly Virginia, freely turned to the issuance of paper money to defray military expenditures.
Parliament first acted to restrict the issuance of colonial paper money in the Currency Act of 1751. That act circumscribed the ability of New England colonies to issue paper money, and banned the circulation of paper money as legal tender for private debts. The Act of 1751 enabled governments to declare paper money legal tender for public debts—that is, taxes—but not for private debts. England’s Board of Trade moved to extend the provisions of the Act of 1751 to colonies south of New England, but the French and Indian War intervened, and the Board of Trade tended to wink or look away as colonial governments issued paper money to finance war expenditures. British merchants, however, saw the issuance of legal-tender paper money as a conspiracy of American debtors to defraud British creditors by repaying debts in depreciated paper money. They lobbied the Board of Trade and Parliament to stop the colonies’ issuance of legal-tender paper money. To be sure, the paper money invariably depreciated relative to British pounds, reducing its value to British merchants.
Unlike the Currency Act of 1751, the Currency Act of 1764 did not restrict the authority of colonial governments to issue paper money, but did ban the designation of any paper money as legal tender for the payment of either private or public debts, thus making the issuance of paper money impractical. The prohibition on the issuance of paper money as legal tender for public debts put colonial governments in a financial crunch. These governments issued paper money and then levied taxes payable in the paper money, automatically providing for the retirement of the paper money issues, and preventing paper money from depreciating in value. Government treasuries rather than monetary authorities, contrary to current practice, issued this paper money. In addition, the issuance of this paper money helped relieve a shortage of coinage that hampered economic activity in colonial economies. Therefore, the Currency Act of 1764 was the equivalent of England enforcing a tight money policy in the colonies in the aftermath of the French and Indian War.
The legal-tender provisions of the act seemed perplexing and ambiguous to the colonists, who found it difficult to understand how a government could issue paper money and not accept it as taxes. Also, several colonies operated loan offices that issued paper notes against the security of real estate. The Act of 1764 seemed to suggest that loan offices could not accept in repayment the notes they had issued. The colonial governments appear to have worked around the act and continued to accept their own paper money in payment for taxes, but the colonists lobbied with Parliament to have the legal-tender restriction on public debts lifted. The colonies needed the paper money to supplement domestic money supplies, which were limited and thus acted as a brake on domestic economic growth. The restrictions on the issuance of paper money added to the tension between the colonies and the English government. With the Currency Act of 1773, Parliament amended the Currency Act of 1764, and lifted the ban on paper money as legal tender for public debts.