The National Currency Act of 1863

Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

The power and wealth of the central government have always been closely connected and a source for debate. In this lesson, we'll talk about the National Currency Act of 1863 and see how this impacted American history.

Money and Politics

They say the three things you should never discuss with people are religion, money, and politics. Well today, we're not going to talk about religion. Money and politics however, that's a different story. In the 19th century, the United States was undergoing a substantial period of national debate over the power of the central government. Some people wanted a very small federal government; some wanted one with a little more power. This debate often came back to the issue of money. People understood that the actual power of the government was directly linked to its wealth, so the concept of creating federal institutions to increase the U.S. treasury, such as things like a national bank, were pretty contentious. Of course, eventually this would be resolved with the National Currency Act of 1863. But how'd we get here? Well, to understand that, let's have a look through the history of money and politics in American society.


In the early 19th century, the United States had a national bank, called the Second Bank of the United States. However, many people opposed it. In particular, Southern Democrats under President Andrew Jackson thought that it benefited wealthy elites over average working-class citizens, thus undermining American equality. Furthermore, they saw it as a tool for the central government to become too powerful. So, in 1832, President Jackson vetoed a bill that would re-charter the Second Bank, and it was closed in 1836 when its charter expired.

Political cartoon praising Jackson for tearing down the Second Bank

For almost the next 30 years, Southern Democrats held tight control of the American government. They continued to insist that a national bank was dangerous to American democratic equality, and for the most part, Americans agreed and demanded a smaller central government. During this time, the only government banks that existed were operated by states, not the federal government. Every bank offered loans and notes of different values, and that meant there was no standardization in terms of banking. In some places, bank notes were backed by silver, in some places by gold, in some places by not much more than reputation. As a result, a bank note for five dollars from one state could be worth much less than a five dollar note from another bank. People liked the idea of keeping banking within control of the state legislatures, but it did make for very inconsistent banking practices across the country.

Then, in 1861, several Southern states seceded and America plunged into its Civil War. The war changed everything. In order to maintain the Union, President Abraham Lincoln drastically increased the power of the federal government in a very short time, giving it the resources and political stature to fight Southern secession. However, it was expensive, and without an effective tax system, the government was deeply in debt. It looked like a national bank might once again be needed.

Passing the Act

The National Currency Act was introduced in 1863 with the intent to create a federally-operated national banking system and to standardize a national currency. Despite that fact that the government was deeply in debt and was in the middle of a war, the act was not met without resistance. Democrat and Republican politicians alike were concerned that a national banking system would make the federal government too strong. About a month after being introduced, the act was passed by a very slim majority, and America's national banking system was created.

Sen. John Sherman of Ohio was a big supporter of the act

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