Specie Resumption Act takes effect in the United States

Background. 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—the redemption of currency notes in gold and silver. Early in 1862, the government issued legal-tender notes called greenbacks, authorized under the First Legal Tender Act signed by President Abraham Lincoln on February 25, 1862. During the suspension from 1862 to 1878, western states used the gold dollar as a unit of account whenever possible and accepted greenbacks at a discount wherever they could.

Legislative Framework. The Specie Payment Resumption Act was passed in January 1875. It required the Secretary of the Treasury to redeem greenbacks in specie on demand on or after January 1, 1879. The act also authorized a reduction in greenback circulation towards a revised limit of $300 million, though contraction was halted in 1878 at $346 million, a level maintained for nearly a century.

Economic Context. By 1879, the return of prosperity aided the resumption effort. Secretary of the Treasury John Sherman accumulated a gold reserve, largely through transactions with Europe, to support the redemption fund. The decline in the greenback premium was also influenced by increased production in the South, particularly during 1877, which exerted downward pressure on the overall price level.