History

Just as the Revolutionary War prompted the Continental Congress to issue paper currency, the financing of the Civil War provided the catalyst for the continuing evolution of U.S. currency. In 1861, the U.S. Treasury issued its first paper currency since the Continentals--Demand notes. They were printed in $5, $10, and $20 denominations, redeemable in coin on demand. Demand notes were also called "greenbacks" because their reverse sides were printed in green ink. Although Demand notes were no longer printed after 1862, they're still valid today, redeemable in current cash at face value.

Demand notes were replaced by Legal Tender notes, which were issued in denominations ranging from $1 to $10,000. To save metals during the Civil War, Legal Tender notes were originally backed by faith in the government, rather than gold or silver. In 1879, the U.S. Treasury began redeeming Legal Tender notes for coin. They were issued until 1966 and are still redeemable today at face value.

Lack of confidence in paper money resulting from the Free Banking Era and the Civil War inspired the creation of Interest-bearing notes, issued from 1861 through 1865. The interest paid on these notes provided the incentive for citizens to hold the currency and also helped to finance the final years of the Civil War.

Between 1861 and 1865, the Confederacy issued currency backed by cotton to millions of southerners, gambling that a Confederate victory would ensure the currency's value. Meanwhile, enterprising Northerners printed Confederate money and circulated it in the South. This led to one of the greatest inflationary periods in America, particularly in the South. By the War's end, Confederate notes were almost worthless and many people bartered or used black market Union issues as a medium of exchange.

Widespread hoarding of coins and the need to divert metals toward the war effort created a shortage of coins during the Civil War. Paper tickets, stamps, and bills were frequently substituted, but the scarcity was so great that Congress authorized the issuance of "paper coins" as a temporary "fractional currency." From 1862 to 1876, the federal government issued more than $368,000,000 in fractional currency in three- to fifty-cent denominations. Called "shinplasters," these paper coins were much smaller in size than our existing currency. After the Civil War, fractional currency was no longer needed and Congress stopped issuing fractional currency in 1876.