On September 1, 1764, Parliament passed the Currency Act, effectively assuming control of the colonial currency system. The act prohibited the issue of any new bills and the reissue of existing currency. Parliament favored a "hard currency" system based on the pound sterling, but was not inclined to regulate the colonial bills. Rather, they simply abolished them. The colonies protested vehemently against this. They suffered a trade deficit with Great Britain to begin with and argued that the shortage of hard capital would further exacerbate the situation. Another provision of the Currency Act established what amounted to a "superior" Vice-admiralty court, at the call of Navel [sic] commanders who wished to assure that persons suspected of smuggling or other violations of the customs laws would receive a hearing favorable to the British, and not the colonial, interests.
In order to understand the 1764 Currency Act, we need to review the earlier Currency Act of 1751 - The New England Currency Act. During the French & Indian Wars, the colonies of New England issued paper money known as "bills of credit" through their colonial British American legislatures, which were backed by tax revenue, to help pay for military expenses during the French & Indian Wars. "Bills of Credit" were circulated to pay for military emergencies, or to build or repair public works but in many cases they also filled the void caused by shortages in the British American colonies of gold & silver coins.
More paper money was issued than was recuperated in taxes, resulting in British American colonial paper money depreciating in value. Merchants in Great Britain were forced to accept the depreciated currency from American colonists for payment of debts. The Bills of Credit caused confusion as there was no standard value common to all of the colonies. The Currency Act of 1751 was passed to limit the colonies from printing & issuing bills of credit. The act of 1751 allowed the existing bills of credit to be used as legal tender for public debts (paying taxes), but banned their use for paying private debts (paying merchants).
The English policy of Salutary Neglect that was in effect from 1607-1763 was a long-standing British Policy in the 13 colonies which allowed the colonists to flout, or violate, the laws associated with trade. However, the British government was far more vigilant when overseeing matters concerning merchants who were based in Great Britain. There concerns were with issues involving contracts, debts, & the rates of currency exchange. Their concern regarding these matters led to the Currency Act Act of 1764. The Currency Act of 1751 was limited to the New England colonies. The act of 1764 was implemented to regulate colonial currency in all of the colonies. The system was chaotic as there were no processes in place to ensure consistency between the colonies in relation to the issue of paper currency. The inconsistencies between the colonies included:
Interest on Bills of Credit: Some paid interest, others did not
Usage: Some prohibited their use to repay debts and only allowed for purchases to be made
Public and Private use: Some were issued to pay for public debts, not for private use
The Currency Act of 1764 therefore prohibited the issue of any new 'Bills of Credit' and the re-issue of existing currency by the American colonists.
The British American colonies suffered a constant shortage of "hard currency" (silver & gold) with which to conduct trade. There were no gold or silver mines in the American colonies. Silver & gold coins (hard currency) could only be obtained through trade as regulated by Great Britain. British Acts effectively stopped trade between the colonies with French, Dutch, & Spanish in the West Indies. Triangular Trade routes, coupled with the policy of Mercantilism, provided a “favorable balance of trade” for Great Britain but an "imbalance of trade" in the British American colonies resulting in a massive trade deficit. The result of this caused the colonies to suffer a chronic shortage of funds. The 1764 Currency Act threatened to destabilize the entire British American colonial economy of New England, the Middle Colonies, & the Southern colonies. The industrial areas in the North & agricultural areas in the South in the British American colonies united against the 1764 Currency Act.
Currency Act 1764
WHEREAS great quantities of paper bills of credit have been created and issued in his Majesty's colonies or plantations in America, by virtue of acts, orders, resolutions, or votes of assembly, making and declaring such bills of credit to be legal tender in payment of money: and whereas such bills of credit have greatly depreciated in their value, by means whereof debts have been discharged with a much less value than was contracted for, to the great discouragement and prejudice of the trade and commerce of his Majesty's subjects, by occasioning confusion in dealings, and lessening credit in the said colonies or plantations: for remedy whereof, may it please your most excellent Majesty, that it may be enacted; and be it enacted by the King's most excellent majesty, by and with the advice and consent of the lords spiritual and temporal, and commons, in this present parliament assembled, and by the authority of the same, That from and after the first day of September, one thousand seven hundred and sixty four, no act, order, resolution, or vote of assembly, in any of his Majesty's colonies or plantations in America, shall be made, for creating or issuing any paper bills, or bills of credit of any kind or denomination whatsoever, declaring such paper bills, or bills of credit, to be legal tender in payment of any bargains, contracts, debts, dues, or demands whatsoever; and every clause or provision which shall hereafter be inserted in any act, order, resolution, or vote of assembly, contrary to this act, shall be null and void.
II. And whereas the great quantities of paper bills, or bills of credit, which are now actually in circulation and currency in several colonies or plantations in America, emitted in pursuance of acts of assembly declaring such bills a legal tender, make it highly expedient that the conditions and terms, upon which such bills have been emitted, should not be varied or prolonged, so as to continue the legal tender thereof beyond the terms respectively fixed by such acts for calling in and discharging such bills; be it therefore enacted by the authority aforesaid, That every act, order, resolution, or vote of assembly, in any of the said colonies or plantations, which shall be made to prolong the legal tender of any paper bills, or bills of credit, which are now subsisting and current in any of the said colonies or plantations in America, beyond the times fixed for the calling in, sinking, and discharging of such paper bills, or bills of credit, shall be null and void.
III. And be it further enacted by the authority aforesaid, That if any governor or commander in chief for the time being, in all or any of the said colonies or plantations, shall, from and after the said first day of September, one thousand seven hundred and sixty four, give his assent to any act or order of assembly contrary to the true intent and meaning of this act, every such governor or commander in chief shall, for every such offence, forfeit and pay the sum of one thousand pounds, and shall be immediately dismissed from his government, and for ever after rendered incapable of any public office or place of trust.
IV. Provided always, That nothing in this act shall extend to alter or repeal an act passed in the twenty fourth year of the reign of his late majesty King George the Second, intituled, An act to regulate and restrain paper bills of credit in his Majesty's colonies or plantations of Rhode Island and Providence plantations, Connecticut, the Massachuset's Bay, and New Hampshire, in America, and to prevent the same being legal tenders in payments of money. V. Provided also, That nothing herein contained shall extend, or be construed to extend, to make any of the bills now subsisting in any of the said colonies a legal tender.