Who Issued Greenbacks?

During the American Civil War, the United States faced a financial crisis due to the escalating costs of the war. In response, the 37th Congress authorized the issuance of paper U.S. Notes, popularly known as “greenbacks.” These notes were declared lawful money for all payments, except for interest on public debt and import duties. This action, known as the Legal Tender Act, significantly expanded federal power and altered the nation’s monetary standard.

Key Facts

Greenbacks were emergency paper currency issued by the United States during the American Civil War.
They were printed in green on the back, hence the name “greenbacks”.
Greenbacks were in two forms: Demand Notes, issued in 1861-1862, and United States Notes, issued in 1862-1865.
Demand Notes were initially discounted relative to gold but became fully redeemable and at par with gold.
United States Notes were issued to pay for labor and goods and were considered equivalent to Demand Notes.
The value of greenbacks declined against gold during the war but recovered after the Union victory at Gettysburg.
The greenback’s low point came in July 1864, but it made another recovery after the war ended in April 1865.
Greenbacks were legal tender for most purposes and carried varying promises of eventual payment in coin but were not backed by existing gold or silver reserves.
Greenbacks funded about 15% of the war effort but raised inflation rates to 14% in 1862 and 25% in 1863.

Background

Before the Civil War, the United States used gold and silver coins as its official currency. Paper currency was issued by private banks, and these banknotes were redeemable for specie at the bank’s office. However, the value of these notes depended on the bank’s ability to redeem them, and bank failures could render the notes worthless.

Demand Notes

The first form of greenbacks, known as Demand Notes, was authorized by Congress in 1861 and issued in 1862. These notes were not interest-bearing and could be redeemed for specie “on demand.” Initially, they were discounted relative to gold but later became fully redeemable and at par with gold. However, in December 1861, the government suspended redemption, causing the value of Demand Notes to decline.

United States Notes

In 1862, Congress authorized the issuance of United States Notes, the second form of greenbacks. These notes were issued to pay for labor and goods and were considered equivalent to Demand Notes. They were not redeemable for gold or silver but were declared legal tender for most purposes.

Impact of Greenbacks

The issuance of greenbacks had several significant impacts:

Funding the War Effort: Greenbacks funded approximately 15% of the war effort, providing the Union government with much-needed financial resources.
Inflation: The issuance of greenbacks also led to rising inflation rates. Inflation reached 14% in 1862 and 25% in 1863, causing economic hardship for workers, professionals, and others whose incomes did not keep pace with the rising cost of living.
Monetary Standard: The Legal Tender Act marked a significant shift in the nation’s monetary standard. It allowed the federal government to issue paper money not backed by existing gold or silver reserves, effectively expanding the money supply. This action had long-lasting implications for the U.S. monetary system and sparked debates about the proper anchor for the system.

Conclusion

The issuance of greenbacks during the Civil War was a critical measure taken by the U.S. government to finance the war effort. While greenbacks provided much-needed financial resources, they also contributed to inflation and raised questions about the nation’s monetary standard. The impact of greenbacks extended beyond the Civil War, shaping the nation’s monetary policies and debates for years to come.

Sources

FAQs

What were greenbacks?

Greenbacks were emergency paper currency issued by the United States during the American Civil War. They were printed in green on the back, hence the name “greenbacks.”

Greenbacks were issued by the United States government, specifically authorized by Congress and issued by the Treasury Department.

Why were greenbacks issued?

Greenbacks were issued to finance the Civil War. The escalating costs of the war depleted the Union’s reserves of gold and silver coin, prompting the government to issue paper money not backed by specie.

What were the different types of greenbacks?

There were two types of greenbacks: Demand Notes and United States Notes. Demand Notes were issued in 1861-1862 and were initially discounted relative to gold but later became fully redeemable and at par with gold. United States Notes were issued in 1862-1865 and were considered equivalent to Demand Notes.

What was the impact of greenbacks on the economy?

Greenbacks had several economic impacts. They funded about 15% of the war effort but also contributed to rising inflation rates, reaching 14% in 1862 and 25% in 1863. This caused economic hardship for workers, professionals, and others whose incomes did not keep pace with the rising cost of living.

Were greenbacks backed by gold or silver?

No, greenbacks were not backed by existing gold or silver reserves. They were fiat money, meaning their value was based solely on the credit of the federal government.

What happened to greenbacks after the Civil War?

After the Civil War, the value of greenbacks recovered, and they became freely convertible into gold in December 1878. Greenbacks continued to circulate until 1934 when they were officially retired.

Why were greenbacks significant?

Greenbacks were significant because they marked a shift in the nation’s monetary standard. The Legal Tender Act, which authorized the issuance of greenbacks, allowed the federal government to issue paper money not backed by gold or silver, expanding the money supply. This action had long-lasting implications for the U.S. monetary system and sparked debates about the proper anchor for the system.