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  • Legal Tender

    Many but not all colonial issues were official legal tender. Legal tender meant the law of the colony required a creditor to accept legal tender notes in payment of a debt that had been previously incurred. However, the law did not require a merchant to accept legal tender for payment in an over-the-counter transaction, because no debt had been incurred. It was the right of the merchant to refuse to do business, a potential purchaser could not demand to make a purchase. For this reason legal tender could only be required to be accepted as payment for previosuly incurred debts. British merchants regularly tried to do away with legal tender status for paper currency because they felt colonial customers should pay debts in silver coin or with drafts backed by British sterling. They did not want to be forced into accepting depressed colonial paper.

    Legal tender status was not considered in the legislation for the earliest printed emissions but it appears to have become rather common by the 1720's. The first colonial issue to have legal tender status was the New Jersey emission of July 14, 1711, thereafter most New Jersey issues were legal tender. New York issues from 1709-1723 do not mention legal tender status but it was attached to most issues from 1724-1764. Under the Currency Reform Act of 1751 legal tender status was denied to all New England issues. Massachusetts stopped producing currency at this point but Rhode Island, Connecticut and New Hampshire continued to emit several issues. This law did not apply to currency outside New England. Finally in the Currency Reform Act of 1764 the British government prohibited all colonial currency from being designated as legal tender. Subsequent issues, as the New York issue of 1771, the numerous Pennsylvania issues of 1769-1775 and the three Maryland issues of 1767-1774, and various issues from the other colonies did not have legal tender status. During the Revolution colonial (or state) issues once again had legal tender status, but several local emissions, issued by cities or individuals, lacked legal tender status.

    In the pre-1764 period some issues did not have legal tender status. Several interest bearing issues (as the Connecticut issues of 1746-1764) and some loan office issues (as the Connecticut issue of August 1732 or the Delaware issues of February 28, 1746 and January 1, 1753) lacked legal tender status. Certainly British administrators wished to suppress legal tender status whenever possible. However, sometimes legal tender status was not desired and was withheld from issues - even after the colonists had broken from British authority. For example, the Massachusetts issue of May 25, 1775 of £25,998 was authorized solely for paying soldiers in the Massachusetts regiment of the Continental army (just before they participated in the Battle of Bunker Hill). The issue was made from engraved plates on large size notes and was to be redeemed a year later on May 25, 1776 with 6% interest. The colony did not intend for this emission to be used for general circulation; rather it was seen as a short term interest bearing bond issued to the soldiers in lieu of immediate payment, therefore it was not designated as legal tender. However, three months later, on August 18, 1775 the colony approved an emission of £100,000 in smaller size notes that were intended for general circulation and therefore designated as legal tender.

    Emissions from neighboring colonies regularly circulated in regional financial centers and frequently a colony would cooperate in the redemption of a neighboring colony's emission, but officially paper currency only held legal tender status in the colony of issue.

    For a discussion of legal tender status see the web encyclopedia at laborlawtalk.com
    "legal tender".

    Latest revision April 12, 2005