United States Issues Its First Paper Money
On March 10, 1862, in the midst of the American Civil War, the Union government issued its first paper money to finance its military efforts against the Confederate States. This initiative marked a significant shift in U.S. monetary policy, as paper money had previously been viewed with skepticism following the unsuccessful issuance during the American Revolution. Over the next three years, nearly half a billion dollars' worth of this currency, colloquially known as "greenbacks" due to the distinctive green ink on the bills, was printed. Unlike earlier forms of currency that were backed by precious metals, these greenbacks were based on the government's "full faith and credit," anticipating modern monetary systems. However, the currency faced significant challenges, including a lack of public support, loss of value compared to gold and silver, and rampant inflation in the Union economy. Ultimately, after the war, the government had to make the paper money redeemable in precious metals to restore confidence. This period marked a pivotal moment in the evolution of American currency and contributed to the development of the contemporary monetary system.
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United States Issues Its First Paper Money
United States Issues Its First Paper Money
On March 10, 1862, during the height of the American Civil War, the Union government of the North began to issue paper money in order to help finance the war effort against the secessionist South, which had organized itself as the Confederate States of America. Nearly half a billion dollars' worth of this currency was printed over the next three years, an enormous sum for that day and age. The expensive green ink used on the back of the bills, a preventative measure against counterfeiters, immediately spawned the slang term greenback for American paper money. Folding money and plain green were later popular expressions.
The Continental Congress had authorized the issuance of paper money to finance the American Revolution of 1776–83, but these bills were notoriously overvalued, and the United States (created by the Constitution of 1787, which went into effect in 1788) eschewed paper currency. There was a federal mint for coining but no arrangements for the production of paper money, although the states were allowed to permit banks chartered within their territory to issue paper certificates (essentially, receipts for gold or silver held on deposit in the relevant bank, which the bearer could cash in). The financial strain of the Civil War forced the federal government to change its policy, however. The greenbacks of 1862 were not backed by precious metals; they anticipated the modern monetary system by being a currency based generally on the “full faith and credit” of the government. However precocious it was, the new currency was nevertheless a failure in its own time. It lacked popular support, lost value relative to precious metals and other forms of currency, and created rampant inflation in the Union economy. After the Civil War, the United States government was forced to make its paper money redeemable in silver and gold.