The Specie Resumption Act was a triumph for the "hard money" forces over the "soft money" advocates during the second Grant administration.
The United States government had issued $450 million in greenbacks during the Civil War. These paper notes were not backed by specie (gold or silver) and maintained value only through trust in the government.
After the war the debtor elements, desiring inflation, wanted the greenbacks to remain in circulation and for new notes to be issued. Conservative forces, abhorring inflation, opposed these schemes and wanted all paper currency to be backed by gold.
Under the Funding Act of 1866, greenbacks in circulation were gradually reduced to $356 million on February 4, 1868, when further retirement was ended. The amount was temporarily raised to $382 million by 1872, but Grant vetoed the Inflation Bill, intended to increase the circulation of greenbacks permanently to $400 million.
On January 14, 1875, a Republican lame-duck Congress passed Senator George Edmunds' Specie Resumption Act, which provided:
- That the U.S. Treasury be prepared to resume the redemption of legal tender notes in specie (gold) as of January 1, 1879
- That gradual steps be taken to reduce the number of greenbacks in circulation
- That all "paper coins" (notes with denominations less than one dollar) be removed from circulation and be replaced with silver coins.
Despite opposition from the Greenback Party, specie payments were resumed on the appointed date. The dire predictions of citizens storming the banks to demand gold for the greenbacks never occurred. As 1879 approached, the government prudently increased its specie reserves and the public became convinced that their paper notes were "as good as gold."