A Colonial Central Bank

Japhy

Banned
I know Wikipedia is evil and all that, but I think that the website does a better job explaining the backround to my question than I can

The Currency Act of 1764 is an Act of the Parliament of Great Britain (citation 4 Geo. III c. 34) which prohibited the American colonies from issuing paper currency of any form. Additionally, Britain had coined almost no silver or copper between 1760 and 1816 and discouraged any American attempts to do so. The colonies were continuously running trade deficits with Britain and shipping gold and silver to Britain was the only way to balance the excess of imports over exports. British merchants engaged in credit sales to the colonies, but the severe British financial crisis of 1762 to 1772 caused British merchants to call in colonial debts. The credit crisis of 1772 caused the bankruptcy rate to double. The inability to provide liquidity by the issuing of paper currency made the monetary contraction more severe. New York City property values and the importation of slaves both fell by one-half.
This Act offset the economy of the colonies and was widely opposed. It hurt trade by removing the circulating medium and went a considerable way in creating the dissatisfaction in the Colonies that eventually led to the American Revolution. Some, such as Benjamin Franklin and Peter Cooper, believed this to be the primary cause of the Revolutionary War.
The colonies created their own money, called Colonial Scrip, before this happened. This money was government-issued fiat currency and had little or no inherent value, as Colonial Scrip was not backed by a Gold or Silver Standard. Some Colonies, such as Pennsylvania and New York, were responsible and issued only enough notes to keep trade healthy, thus keeping the notes at par with gold. Other Colonies had different systems with less discretion and had inflation issues.
It has been said that the Currency Act of 1764 was the result of Benjamin Franklin's testimony to the British Board of Trade in which he explained the benefits of Colonial Scrip, which allowed the government instead of private banks to have the benefit of money creation, thus lowering the tax burden on the people. This was a complete reversal from the established British school of economics in which the Government borrowed hard money (gold and silver) from private banks at interest, and it was viciously opposed by the British banking interests for this reason.
Parliament gave permission, in some cases, for colonies to issue limited amounts of paper currency. In 1770, the Province of New York was permitted to issue 120,000 pounds of paper currency.
Franklin and many others thought this Act to be the true cause of the American Revolution.

I know, long, Im sorry.

But now I have to ask, As the British goverment stripped the colonies of their right to produce Colonial Scrip, they left only the few circulateing coins left in the economy, and the barter trade. Thus, the situation for collecting taxes was less than ideal, so now my question:

What if the British Parliment had set up a Central Bank, similar (or attached) to the Bank of England, in the American colonies, as part of their legislation in 1764?

With paper currency in circulation, the colonies are much more capable of paying their taxes, thus severly deminishing the anger and resentment caused by the American Duties Act, and everything that came after. Would this stop the American Revolution from ever happening?
 
I think that this could do the trick. If this Act was as important in slowing down the American economy as the article says, then that would explain the violent reaction that the new taxes passed after this act drew from American colonists.

I am of the opinion that the French monarchy would have probably fallen regardless of the loans made to the Americans, because there would have been another round of Anglo-French war between the '63 Treaty of Paris and 1789. That round of wars would have had the same financial effect as the American Revolution.

Once the French Revolution starts, the Americans will probably have a deal of sympathy for the attempts at liberalizing the monarchy. However, once the King is executed and the Republic declared, the Americans would have the proper reaction of any British patriot and supported the war against the French Republic.

If Spain ends up an ally of the French Republic, then the Americans will be all the more for the war, since they can try and conquer as much of Spanish America as they can get their hands on (starting with New Orleans, and maybe Cuba).

From this TL: "The relationship forged between Col. Alexander Hamilton and Wellington during the Penisular War is considered one of the key events in the creation of the United Kingdom of Great Britain, Ireland, and America."
 
I know Wikipedia is evil and all that, but I think that the website does a better job explaining the backround to my question than I can



I know, long, Im sorry.

But now I have to ask, As the British goverment stripped the colonies of their right to produce Colonial Scrip, they left only the few circulateing coins left in the economy, and the barter trade. Thus, the situation for collecting taxes was less than ideal, so now my question:

What if the British Parliment had set up a Central Bank, similar (or attached) to the Bank of England, in the American colonies, as part of their legislation in 1764?

With paper currency in circulation, the colonies are much more capable of paying their taxes, thus severly deminishing the anger and resentment caused by the American Duties Act, and everything that came after. Would this stop the American Revolution from ever happening?

Well, firstly, I doubt highly that they'd do that. People from the US tend to back project their nationalism. What Britain would surely do, if they did anything in this vein, would be to let the colonies produce their own money (probably minted coin, not paper). Now, because of the fiscal imbalances you mentioned, the colonial currencies would quickly depreciate, but this could actually be a good thing for the Empire.

Firstly, more currency/liquidity would allow more commerce and business to thrive in the colonies. Secondly, taxes paid to Britain for support of the Empire would presumably be in UK pounds, and if e.g. the Massachusetts shilling is 50 to a UK pound (instead of 20 UK shillings), then some of the push 'these colonists are rich they need to pay more taxes' might ease. Thirdly, the need for UK currency to send to Britain might encourage the local elites (assemblies, etc.) to piggyback their own taxes on the Imperial ones, and/or negotiate a share of those taxes/duties levied in their areas. This would mean that smuggling might start to be perceived as stealing from your neighbours instead of from a far-off impersonal government.

Hmmm... You know, this could be worked into a Britwank!
 
Actually, is this really going to provide more liquidity? The general concept behind the Parliament's actions seems to be to make sure that the British bankers got paid what they were owed, without inflationary interference by paper-money issuing American colonial governments.

The trade deficits were what then made smuggling operations like Mr. Hancock's economically advantageous, because it allowed American merchants and consumers to get goods from non-British suppliers, and without paying British prices (made higher because of the Navigation Acts).

I don't really see the policy being changed. The bankers in Britain were acting in a pretty rational way- they wanted to be paid what they were owed. And since Parliament has the ability to decide those kind of higher economic issues, there was (obviously) not a lot the colonial governments could do about it.

The idea of a colonial central bank is a cool idea, but I think that something like that would have to be done in the context of the Albany Plan being adopted. If the Albany Plan is adopted, then this financial crisis and the Currency Act would still both occur, but its possible that the colonial governments (since their already listening to Ben Franklin more than OTL) decide to create a "Bank of America".

The potential of having a bank under American control would probably appeal to the American merchant elite. The bank could establish itself in the American colonies by buying up American debt from British creditors. This might be where the appeal to the British banking interests comes in. While colonial governments might try to frustrate attempts by the British to collect debts, the chance of them interfering with the financial well-being of their own leading citizens (those merchants who invested in the "Bank of America") is unlikely. So British creditors could basically farm out debt collection to this new American bank, allowing American lawyers and bankers to collect what is owed.

The potential upsides for the British banking interests could lead to the Parliament giving the Bank of America the right to issue currency, something that was obviously needed in the colonies. With a currency-issuing bank on the continent, the economy may fair better, and by consolidating American debt the Albany Plan colonial government (or at least the merchant backers of the bank) would a great deal of leverage over the American colonial governments and overall economy.
 
Top