Specie Payment Resumption Act

The Specie Payment Resumption Act of January 14, 1875 was a law in the United States that restored the nation to the gold standard through the redemption of previously-unbacked United States Notes and reversed inflationary government policies promoted directly after the American Civil War. The decision further contracted the nation's money supply and was seen by critics as an exacerbating factor of the so-called Long Depression, which struck in 1873.

Late in 1861, seeking to raise revenue for the American Civil War effort without exhausting its reserves of gold and silver, the United States federal government suspended specie payments, or the payments made in gold and silver in redemption of currency notes. Early in 1862, the United States issued legal-tender notes, called greenbacks. By war's end, a total of $431 million in greenbacks had been issued, and authorization had been given for another $50 million in small denominations, known as fractional currency or "shin plasters." The issuance of greenbacks caused inflation during the period.

Immediately after the Civil War during Reconstruction, there were large capital inflows into the United States and a general improvement in the export-to-import ratio since the export-dominant South was reintegrated with the North. The United States Treasury, however, had increased its cash balance through the summer of 1873 by selling gold for $14 million. National banks also increased issuance of national bank notes by $44 million. The failure of several railroad companies including Jay Cooke & Company on their bond obligations encouraged capital outflows from the United States to Europe and weakened demand for dollars leading to the Panic of 1873. Increased Treasury cash balances, continued issuance of national bank notes, and capital outflows together depreciated the currency. These factors further caused a reduction in reserves held by monetary institutions because higher prices increased domestic demand for currency. Reserves held by banks were insufficient to be able to meet seasonal demands in autumn of 1873 as greenback reserves declined from $34 million in September 1873 to $5 million in October 1873. Tensions surrounding the Panic of 1873 between creditors and debtors revived the specie payment resumption debate.

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