Currency Act

The Currency Act is any of several Acts of the Parliament of Great Britain that regulated paper money issued by the colonies of British America. The Acts sought to protect British merchants and creditors from being paid in depreciated colonial currency. The policy created tension between the colonies and Great Britain, and was cited as a grievance by colonists early in the American Revolution. However, the consensus view among modern economic historians and economists is that the debts owed by colonists to British merchants was not a major cause of the Revolution. In 1995, a random survey of 178 members of the Economic History Association found that 92 percent of economists and 74 percent of historians disagreed with the statement, "The debts owed by colonists to British merchants and other private citizens constituted one of the most powerful causes leading to the Revolution."

From their origin, the colonies struggled with the development of an effective medium of exchange for goods and services. After depleting the vast majority of their monetary resources through imports, the first settlers strained to keep money in circulation. They could not find a suitable medium of exchange in which the value did not depreciate. The colonists generally employed three main types of currency. The first was commodity money, using the staple of a given region as a means of exchange. The second was specie, or gold or silver money. Lastly, paper money (or fiat money), issued in the form of a bill of exchange or a bank note, mortgaged on the value of the land that an individual owned.

Each year, the supply of specie in the colonies decreased due to international factors. The dearth of specie rendered it ineffective as a means of exchange for day-to-day purchases. Colonists frequently adopted a barter system to acquire the goods and services they required. Essentially, this method proved to be ineffective and a commodity system was adopted in its place. Tobacco was used as a monetary substitute in Virginia as early as 1619. A major shortcoming of this system was that the quality of the substitutes was inconsistent. The poorer qualities ended up in circulation while the finer qualities were inevitably exported. This commodity system became increasingly ineffective as colonial debts increased.

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