Currency Act of 1751
What was the Currency Act of 1751?
The Currency Act of 1751 prohibited the issue of new bills of credit by New England colonies: Rhode Island, Massachusetts Bay, New Hampshire and Connecticut. Parliament decided to enact the Currency Act of 1751 to control currency depreciation against silver and sterling and to ensure its value for payments of debt to British merchants. A subsequent Currency Act enacted in 1764 extended the policy to all British colonies in the Americas increasing more tension between Britain and America.
Why was the 1751 Currency Act passed?
Most of the hard currency and revenues in the colonies flowed back to England to pay for its escalating debt and as a result colonies suffered a constant shortage of currency. Colonial governments were allowed to print currency on the condition that they collected taxes in the same amount but because of the shortage of currency the only alternative was to print their own money to conduct business and every day transactions. The new paper money printed by the colonies was in the form of Bills of Credit issued by land banks based on the value of mortgage land, there was no standard value or regulations. Bills of credit were subject to continuous fluctuations and when more paper money was printed than collected in taxes it lost its value relative to the sterling and triggered inflation.
There was general confusion about the legality and value of different paper bills of credit as legal tender in the payment of debt. Inflation was rampant, as the New England bills had sharply depreciated against the sterling to as low as ten to one. At the same time money from other colonies, specially Rhode Island, was flowing into the Massachusetts. Banning outside paper currency in the colony required parliamentary intervention, Parliament passed the Currency Act of 1751. Massachusetts pushed for reimbursement of war expenses in order to give up printing paper currency.
What did the Currency Act of 1751 do?
- The act limited the amount of currency in circulation in Massachusetts Bay, Rhode Island, New Hampshire and Connecticut.
- Bills of credit could not be issued under any circumstances “only to fund the military in time of war and invasion or in service of government”.
- Any new paper bills issued to fund government service of the four New England colonies had to be secured with tax revenues and retired within two years from the date issued.
- Bills issued to meet extraordinary and sudden emergencies of war and invasion were to be retired within five years.
- New bills were not to be used to pay private obligations and existing bills could not be used beyond their redemption period.
- The Act applied to New England colonies only as currency in the middle and southern colonies were relatively stable against the sterling.
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