The circulating medium of modern States consists both of metallic money and of credit money, issued either by banks or by the Government, which in normal times is convertible into metallic money on demand. But there are few States which have not passed through crises when the metallic covering of its paper money has become too scanty, and the convertibility of the paper has been suspended. Such a general suspension of specie payments is legalized either directly or tacitly by the Government. The issues of credit money are usually in such close relation with the Government that such an action must receive governmental sanction.

The effect of suspension is to relax the restrictions upon the issue of paper money, and the general result is a redundancy of such money and its depreciation. This does not happen
immediately, as the action generally leads to the hoarding or export of such metallic money as remains in the country, thus causing a void in the monetary circulation which the issues of paper money do not at once fill.

The extent of the depreciation of the paper money usually depends upon the facility with which it is issued. On the suspension of specie payments by the Bank of England in 1797, the effect of increased note issues was only gradually felt, for the bank followed in the main a conservative policy. This was true also of the suspension by the Bank of France in 1870. On the other hand, during the suspension of specie payments in the United States in 1813, the banks issued notes recklessly and the depreciation was considerable. When the banks of the United States, on December 30, 1861, again suspended specie payments and the Government followed their example, the large issues of legal-tender notes caused a like result.

The resumption of specie payments is usually a slow and tedious process. The first step toward resumption is the gradual restriction of the paper issues; in the case of Government notes redemption is accomplished by the aid of taxation, while in the case of bank notes resumption occurs through pressure of the Government by taxation of excessive issues or by other means. The second step is to procure a fund of metallic money sufficient to meet probable demands for redemption. To effect this end the Government credit is usually called into requisition. The resumption of specie payments restores the convertibility of credit money, but does not destroy the money itself. It provides for the redemption in metallic money of such sums as may be presented, but not the compulsory redemption of the whole.

The financial history of the United States in the years succeeding the Civil War illustrates the process of resumption. The close of that war found the monetary circulation of the United States exclusively paper, Government issues, State bank notes, and national bank notes. Specie payments had been suspended since 1861, and a return to them seemed the first duty of financial policy. The fear of a contraction of the currency, however, made the first steps in this direction hesitating and uncertain. The gradual redemption of the United States notes, which in January, 1864, had stood at $449,000,000, undertaken under the law of April 12, 1866, had been arrested in February, 1868, when the amount stood at $356,000,000. 

In the financial troubles of 1873, the Secretary of the Treasury, upon somewhat dubious authority, had increased the volume, but by act of June 20,1874, Congress stopped this increase when the issue had reached $382,000,000. The task of resumption was earnestly taken in hand early in 1875, when an act was passed providing for resumption on January 1, 1879. In its several provisions and as a whole the act was in the following years the object of repeated attack, but all efforts to repeal it failed. This law removed the limitation which had heretofore rested upon the aggregate issue of national bank notes. It provided, moreover, that as new notes were issued, United States notes to the extent of 80 per cent. of the new bank issues should be retired and canceled.

Under this provision the volume of the legal-tender notes diminished by May 31, 1878, when this provision was repealed, to $345,000,000. The resumption act further authorized the Secretary of the Treasury, by the accumulation of surplus revenues and by the sale of bonds, to collect a supply of gold wherewith to resume. The amount to be collected and the amount to be maintained after resumption became a fact were left to his discretion. By the sale of bonds at favorable opportunities the Secretary had on hand on the day of resumption $140,000,000 in gold. The growing strength of the Treasury produced a diminishing premium on gold, and the first of January, 1879, passed off without the dreaded shock. Only a small amount of paper money was actually presented for payment.